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-BOE MPC Voted 9-O For Unchanged Policy But Signals Earlier Tightening
By David Robinson and Jamie Satchithanantham
LONDON (MNI) - The Bank of England Monetary Policy Committee voted
unanimously for unchanged policy at its February meeting but made clear
that it now wanted to get inflation back to target in two years rather
than the three year goal it had focussed on since the June 2016 European
With the Bank's February Inflation Report (IR) showing headline
inflation holding above the 2.0% target throughout the three year
forecast horizon, the MPC made clear that more and earlier tightening
would be required than previously expected.
The MPC's mandate allows it to take longer to get inflation back to
target in exceptional circumstances, but the committee has now set this
aside and is aiming to get it back on track over its traditional two
The MPC stated that if the economy evolved as expected "monetary
policy would need to be tightened somewhat earlier and by a somewhat
greater degree over the forecast period than anticipated at the time of
the November (Inflation) Report," the minutes stated.
The November IR showed Bank Rate rising to 0.7% in Q3 2018 and 0.8%
in Q1 2019 and the February IR profile was similar, with Bank Rate
rising from 0.6% in Q3 to 0.8% in Q1. The implication of the MPC stating
that the November rate curve was too low is that as the February curve
is similar it too is too low.
Headline CPI inflation was shown at 2.28% in Q1 2019, 2.16% in Q1
2010 and 2.11% in Q1 2021.
The February IR contained the results of the Bank's annual supply
side stock take. It concluded that there was "very limited" slack left
and that the output gap would turn negative in Q1 2021.
With potential growth unrevised at 1.5% the IR growth forecasts
suggest expected growth in inflationary territory. On market rates four
quarter GDP growth was projected at 1.77% in Q1 2019, 1.66% in Q1 2020
and 1.68% in Q1 2021.
The near term growth forecasts were nudged up from their November
predecessors due to robust global growth, but the profile was pretty
The equilibrium, or non-inflationary, jobless rate was revised down
to 4.25% from 4.5% with joblessness expected to stick close to it,
hitting 4.2% in Q2 2018 and 4.1% in Q3 2019 and staying at 4.1% until
the first quarter of 2021.
Four quarter average weekly earnings growth was nudged up to 2.5%
from 2.25% in the fourth quarter of last year, and then projected to
rise to 3.0% in Q4 2018 and 3.25% in Q4 2019 and 3.5% in Q4 2020, which
would see a return to real income growth.
One downside inflation risk cited in the IR was weaker than
expected growth, with some softness seen in business surveys. An upside
risk was even faster earnings growth in light of labour market
tightness, with widespread skill shortages and markedly reduced net
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