Posted December 10, 2015 Ashley Chadwick
The Monetary Policy committee has voted to keep rates on hold for the 82nd consecutive month. The decision was as expected, with the most recent CPI print of -0.1% in October.
The voting result was 8-1, with McCafferty remaining as the sole dissenter for a fourth month. There had been a possibility that other hawkish members of the MPC could have joined McCafferty in voting for a rate hike. Forbes who had voted for a hike a number of times before the Oil price fall in late 2014 did not change his vote to a hike this time round. Similarly, Forbes who has made several hawkish comments in recent times remained with the majority.
The reasons behind their decision stem from the lack of inflation in the Economy. Oil has again made new multi year lows and subdued wage growth mean there is little fear of inflation rising rapidly. They still believe inflation is set to remain comfortably below the 2% target in the coming months. There was no evidence to suggest the decision on when to increase rates was coming into ‘sharper relief’ as Governor Carney had suggested may happen by the end of the year. This highlighted the lack of inflation pressure in recent months. During which time the BoE inflation projections have fallen.
The dovish tone of the minutes saw a fall in the value of the Pound. It dropped 80 pips on the news, but had recovered half of the fall within two hours.
The BoE seems set to remain the ‘Piggy in the middle’, between the diverging Fed and ECB. This may be the case for a while with many analysts shifting their expectation for UK rate lift off back all the time. Current estimates are around late summer 2016. This would make Britain the second major economy to begin monetary tightening as is widely expected.
Image via Flickr: James Oxley, Bank of England