Bank of England (BoE) November 2016 Monetary Policy Decision

posted in: Monetary Policy, Notes | 0

Rates are unchanged

“…the Committee voted unanimously to maintain Bank Rate at 0.25%. The Committee voted unanimously to continue with the programme of sterling non-financial investment-grade corporate bond purchases totalling up to £10 billion, financed by the issuance of central bank reserves. The Committee also voted unanimously to continue with the programme of £60 billion of UK government bond purchases…”

Improving sentiment

“…indicators of activity and business sentiment have recovered from their lows immediately following the referendum and the preliminary estimate of GDP growth in Q3 was above expectations. These data suggest that the near-term outlook for activity is stronger than expected three months ago. ”

The past 3 months characterised by two phases of stability then depreciation in the sterling

“In financial markets, the past three months have been characterised by two phases. In the first, the sterling exchange rate stabilised for a period following its initial post-referendum depreciation…financial conditions and other asset prices recovered from the deterioration seen straight after the referendum, accompanied by a sharp increase in corporate bond issuance. However, in the period since the beginning of October, the sterling effective exchange rate index has depreciated further. Market intelligence attributes these latter movements to perceptions that the United Kingdom’s future trading arrangements with the EU might be less open than previously anticipated, requiring a lower real exchange rate to improve competitiveness and support activity. Longer-term gilt yields have risen notably, as have market-implied expectations of medium-term inflation. ”

Inflation expected to pick up following sterling depreciation

“Largely as a result of the depreciation of sterling, CPI inflation is expected to be higher throughout the three-year forecast period than in the Committee’s August projections. In the central projection, inflation rises from its current level of 1% to around 2¾% in 2018, before falling back gradually over 2019 to reach 2½% in three years’ time. Inflation is judged likely to return to close to the target over the following year.”