Bank of England officials voted unanimously to keep policy unchanged this month and said a record-low interest rate may be needed even after unemployment falls to the threshold set under forward guidance.
“There were uncertainties over the durability of the recovery,” the Monetary Policy Committee said in the minutes of its Nov. 6-7 meeting, published in London today.
“With the proviso that medium-term inflation expectations remained sufficiently well anchored, the projections for growth under constant bank rate underlined there could be a case for not raising bank rate immediately when the 7 percent unemployment threshold was reached.”
Under the guidance introduced by Governor Mark Carney in August, the MPC has said it won’t consider raising its key rate from 0.5 percent at least until joblessness hits 7 percent.
In forecasts published this month based on no change to the benchmark rate, it saw that threshold being hit at the end of next year. The pound erased its gain against the dollar after the minutes were published. It traded $1.6125 as of 9:32 a.m. in London, unchanged from yesterday.
MPC Vote
The report showed that at the Nov. 6-7 meeting, the MPC voted 9-0 to keep the benchmark unchanged and the asset-purchase program at 375 billion pounds ($605 billion). It also said that the inflation and financial-stability knockouts that form part of the guidance policy hadn’t been breached.
“Once unemployment had reached 7 percent, the committee would reassess what it had learned about the nature of the recovery,” the MPC said.
“In the meantime, the committee would continue to judge the appropriate stance for policy each month in line with the guidance given in August.” The MPC said that data over the past month had not changed its view materially.
The panel’s collective view was that productivity was “likely to increase over the forecast period as the economy recovery, albeit by less than demand, such that slack in the economy was eroded only gradually.”
The committee noted a recent increase in inflation expectations, though this was of “little economic significance” and it said medium-term expectations were “well-anchored.” It also said the increase may have been partly due to utility-price increases and may unwind.
The MPC said the stronger pound would have downward pressure on price growth next year, “although it was unclear how much of this would be passed through to consumer prices given the more favorable domestic demand environment.”
Recovery Risks
The MPC said upside risks to growth included greater confidence in the recovery and looser credit supply, while downside risks came from household and bank balance-sheet repair and vulnerability to disorderly adjustments in Europe and some emerging market economies.
“With the external environment unlikely, therefore, to be an engine of U.K. growth, and given that the domestic fiscal consolidation would continue over the forecast period at around its current rate, a successful handover from household to business spending would play a crucial role in underpinning the recovery in the medium term,” the minutes said.
bloomberg.com
“There were uncertainties over the durability of the recovery,” the Monetary Policy Committee said in the minutes of its Nov. 6-7 meeting, published in London today.
“With the proviso that medium-term inflation expectations remained sufficiently well anchored, the projections for growth under constant bank rate underlined there could be a case for not raising bank rate immediately when the 7 percent unemployment threshold was reached.”
Under the guidance introduced by Governor Mark Carney in August, the MPC has said it won’t consider raising its key rate from 0.5 percent at least until joblessness hits 7 percent.
In forecasts published this month based on no change to the benchmark rate, it saw that threshold being hit at the end of next year. The pound erased its gain against the dollar after the minutes were published. It traded $1.6125 as of 9:32 a.m. in London, unchanged from yesterday.
MPC Vote
The report showed that at the Nov. 6-7 meeting, the MPC voted 9-0 to keep the benchmark unchanged and the asset-purchase program at 375 billion pounds ($605 billion). It also said that the inflation and financial-stability knockouts that form part of the guidance policy hadn’t been breached.
“Once unemployment had reached 7 percent, the committee would reassess what it had learned about the nature of the recovery,” the MPC said.
“In the meantime, the committee would continue to judge the appropriate stance for policy each month in line with the guidance given in August.” The MPC said that data over the past month had not changed its view materially.
The panel’s collective view was that productivity was “likely to increase over the forecast period as the economy recovery, albeit by less than demand, such that slack in the economy was eroded only gradually.”
The committee noted a recent increase in inflation expectations, though this was of “little economic significance” and it said medium-term expectations were “well-anchored.” It also said the increase may have been partly due to utility-price increases and may unwind.
The MPC said the stronger pound would have downward pressure on price growth next year, “although it was unclear how much of this would be passed through to consumer prices given the more favorable domestic demand environment.”
Recovery Risks
The MPC said upside risks to growth included greater confidence in the recovery and looser credit supply, while downside risks came from household and bank balance-sheet repair and vulnerability to disorderly adjustments in Europe and some emerging market economies.
“With the external environment unlikely, therefore, to be an engine of U.K. growth, and given that the domestic fiscal consolidation would continue over the forecast period at around its current rate, a successful handover from household to business spending would play a crucial role in underpinning the recovery in the medium term,” the minutes said.
bloomberg.com
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