Bank of England policymakers have noted the signs of strengthening of the euro area, which could benefit the UK economy in the long run, and the domestic inflation is expected to pick up faster later on after remaining negative in the coming months.
“All Committee members agreed that it was appropriate to leave the stance of monetary policy unchanged at this meeting, although two members regarded this month’s decision as finely balanced,” the minutes of the April 8-9 meeting said Wednesday.
“There was a range of views over the most likely future path of Bank Rate, but all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period.”
In April, the nine-member Monetary Policy Committee, led by Governor Mark Carney, unanimously decided to retain the key bank rate at 0.50 percent, the minutes said. The rate has been at the current 0.50 percent since March 2009.
The size of the quantitative easing program was also maintained at GBP 375 billion in a 9-0 vote. The quantitative easing was first introduced at the March 2009 meeting.
The impact of a stronger sterling was feeding into the consumer price index through more quickly than expected, implying less downward pressure on prices in the coming months and a faster pickup in inflation once the effects of recent falls in energy and food prices drop out of the annual comparison, the minutes said.
UK inflation remained at a record low zero percent for the second straight month in March as declines in clothing and gas prices were offset by higher motor fuel costs
Policymakers also said a further pickup in wage inflation was necessary for labor cost growth to be consistent with meeting the target in the medium term.
While acknowledging the signs of strengthening in the euro area, policymakers said any disorderly outcome from a failure to reach agreement on a new Greek programme remained a risk.
“Although it was too early to be confident, a succession of firmer data suggested that growth in the euro-area economy was picking up, supported by a confluence of factors – improving credit conditions, a recovery in confidence, a lower oil price, accommodative monetary policy and a weaker currency,” the minutes said.
“If stronger growth in the euro area was sustained, this would be beneficial for the UK economy, even allowing for any influence the ECB’s asset purchase programme was having on the configuration of exchange rates.”
The country heads for a poll on May 7. The U.K. interest rate has been steady at 0.50 percent through out the five-year term of Prime Minister David Cameron.
Capital Economics Senior UK economist Samuel Tombs said although the MPC did not express any views on the potential impact of the general election on monetary policy, it noted evidence from the Bank’s Agents that uncertainty about the election had had little appreciable impact on investment plans so far.
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