The Bank of England left its key record low interest rate and the size of the quantitative easing unchanged ahead of the publication of its latest quarterly update on inflation later this week, amid low inflation and signs of slowdown in the economy.
The Monetary Policy Committee, led by Governor Mark Carney, decided on Monday to retain the key bank rate at 0.50 percent and the size of asset purchases at GBP 375 billion.
The decision was in line with economists’ expectations. The rate has been at a historic low since March 2009. The previous change in quantitative easing was an increase of GBP 50 billion in July 2012. Economists do not expect the bank to raise rate until the next year.
The announcement of the decision was postponed from last Thursday as it coincided with the general election that sprung a surprise, by returning Prime Minister David Cameron and his Conservative Party to power with sole majority.
The central bank is set to publish its latest quarterly inflation report containing its economic projections on May 13.
An open letter from the BoE Governor Carney to the Chancellor of the Exchequer will also be released along with the report as the country’s inflation has undershot the 2 percent target by more than 1 percent for three months running.
Inflation remained at zero in March after easing to that level for the first time on record in February. Factory gate prices dropped for the ninth consecutive month in March. Economists and policymakers expect a brief period of deflation, which may help the economy.
The U.K.’s first quarter economic growth halved to 0.3 percent, the slowest pace since 2012, reflecting contraction in construction and industrial activity.
“Since the first estimate of Q1 GDP has cast some doubt over the recovery’s health, the MPC is likely to have voted unanimously again at this month’s meeting to keep interest rates on hold,” Capital Economics economist Samuel Tombs said.
“The recovery is secure, the tough fiscal squeeze that is now all but certain to hit the economy and the subdued outlook for inflation should ensure that monetary policy is tightened only gradually from next year.”
The bank is set to release the minutes of the latest rate-setting session on May 20. In April, the nine-member MPC unanimously decided to retain the key rate and the size of the quantitative easing.
The minutes of the April meeting showed that policymakers acknowledged the signs of strengthening of the euro area, which could benefit the U.K. economy in the long run, and assessed that domestic inflation could pick up faster later on after remaining negative in the coming months.
“Now that the political uncertainty has cleared the BoE can focus once again on the data, which in general shows an economy that is performing well with little near-term inflation threat. Indeed, wage growth remains modest and headline inflation is at zero,” ING Bank economist James Knightley said.
“We wouldn’t be surprised to see the BoE nudge up their inflation forecasts on Wednesday and perhaps emphasise a little more forcibly that the prospect of interest rate rises is getting closer.”
The material has been provided by InstaForex Company – www.instaforex.com