The Bank of England’s Monetary Policy Committee (MPC) has voted unanimously to maintain the Bank Rate at 0.75%. The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.
The Committee assume a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. They are also conditioned on a path for Bank Rate that rises to around 1% by the end of the forecast period, lower than in the February Report. As with UK financial conditions more generally, that path has been heavily influenced by recent global developments, with forward interest rates in the United States and the euro area falling markedly.
The MPC has noted previously that UK data could be unusually volatile in the near term, due to shifting expectations about Brexit in financial markets and among households and businesses. GDP is expected to have grown by 0.5% in 2019 Q1, in part reflecting a larger-than-expected boost from companies in the United Kingdom and the European Union building stocks ahead of recent Brexit deadlines. That boost is expected to be temporary, however, and quarterly growth is expected to slow to around 0.2% in Q2.
CPI inflation was 1.9% in March and is expected to be slightly further below the MPC’s 2% target during the first half of the forecast period, largely reflecting lower expected retail energy prices. The labour market remains tight, with the unemployment rate projected to decline to 3½% by the end of the forecast period. Annual pay growth has remained around 3½% and unit labour cost growth has strengthened to rates that are above historical averages. As excess demand emerges, domestic inflationary pressures are expected to firm, such that CPI inflation picks up to above the 2% target in two years’ time and is still rising at the end of the three-year forecast period.
The Committee continues to judge that, were the economy to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom.
The next MPC meeting is on Wednesday 19 June 2019 with the announcement to be published the following day on 20 June 2019.