The Bank of England (BoE) nine members strong Monetary Policy Committee (MPC) is expected to hold the Bank rate at 0.50% and the volume of the asset purchasing unchanged this Thursday, June 21, when deciding on monetary policy at the Threadneedle street in London.
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May BOE reviews
With the UK inflation decelerating towards the target more quickly than expected in February and the GDP growth slowing down sharply at the beginning of this year, it was no surprise from the Bank of England to keep the Bank rate at the unchanged level of 0.50% in May. Looking ahead, the bank of England sees the rate hike path in line with the market forecast that sees the 86% probability of the Bank of England moving in November, down from 86% anticipated ahead of May Inflation Report.
The Bank of England decided to keep the Bank rate unchanged in May with seven of nine Monetary Policy Committee members supporting the decision while two members dissented.
The media has rightly focused on policymakers’ confusing, or perhaps to put it more charitably, finely nuanced reasons for keeping the Bank rate at 0.5% and stock of assets unchanged on Thursday.
March BOE meeting review
The Bank of England keeps May rate hike as probable action while keeping rates on hold in March. The expectations for May rate hike increased after February Inflation Report in which the bank said that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than (previously) anticipated.”
Crucially, whilst doing nothing to alter signals of a fresh 25 basis point at its next meeting, the committee flagged a lack of urgency in telegraphing moves beyond that. Future increases “would be gradual and limited” the MPC’s statement said. Nor was much there concern on the committee over the newly contentious issue of international trade. Imminent U.S. tariff announcements were likely to have a limited impact, according to the statement, even if any eventual rise in protectionism would have a “significant negative impact”.
The Bank of England maintained monetary policy unchanged but two BoE members (Ian McCafferty and Michael Saunders) voted for an immediate rate hike (vote count 7-2 for an unchanged Bank Rate). While Mark Carney has already revealed that the BoE no longer wants to pre-commit to a hike, this was as close to a pre-commitment as we could get.
Brexit negotiations, exploring unknown territory
The progress in Brexit negotiations is slower than expected. The next round of negotiations, originally scheduled on September 18, is postponed by a week. Media reports suggested that UK's PM Theresa May was preparing to make an "important intervention" on the talks. While the UK urged the EU to be more flexible and to move to trade deals, the EU insisted that the “divorce bill” issue has to be resolved first. EU's chief negotiator Michael Barnier noted last week that he was “very disappointed” by the UK government as it “seems to be backtracking” on commitments to the bill.
While the hawkish members, mainly Michael Saunders and Ian McCafferty, would warn of strong inflation on the economy, the rest would consider the overall economic environment and uncertain outcome of Brexit as key factors to keep the monetary policy unchanged.
What is the BOE?
Founded in 1694, the Bank of England is the central bank of the United Kingdom. Sometimes known as the ‘Old Lady’ of Threadneedle Street, the Bank’s mission is "to promote the good of the people of the United Kingdom by maintaining monetary and financial stability".
The Bank of England is responsible for keeping the UK’s economy on the right track. They operate monetary policy by moving Bank Rate up and down and, in certain circumstances, we also supplement this with measures such as quantitative easing.
Who is BOE's president?
Mark Carney is Governor of the BoE and Chairman of the Monetary Policy Committee, Financial Policy Committee and the Prudential Regulation Committee. His appointment as Governor was approved by Her Majesty the Queen on 26 November 2012. The Governor joined the Bank on 1 July 2013.
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The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.