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--Votes 9-0 For Unchanged Policy And Asset Purchases
By David Robinson
LONDON (MNI) - The Bank of England Monetary Policy Committee voted
unanimously to leave policy unchanged at its February meeeting, while
the Inflation Report showed near term growth and inflation softer than
previously expected, but further ahead growth was expected to recover
and inflation to come in a touch higher.
The following are key points from the report:
-The Inflation Report forecast round gave Bank economists time to
look in depth at the weakness in recent UK and global growth and the
MPC took the view that it was likely to be ephemeral. "A period of
softer growth domestically and in the rest of the world was likely to
prove only temporary and, in the UK, excess demand was expected to
build over the second half of the forecast period," it said.
-The MPC did not attach the line about temporary weaker global
growth to its policy guidance. Instead it stuck to the mantra that "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."
-Brexit uncertainty overshadows this Inflation Report. The MPC stuck
to its convention of assuming a smooth transition to one of a range of
Brexit outcomes, whereas market pricing has to place some weight on a
disruptive Brexit outturn. The BOE's stylised Brexit assumptions suggest
that Bank Rate may have to rise a little faster than the market had
-Inflation on the CPI measure was shown at 2.35% in Q1 2020 and
2.07% in Q1 2021 and 2.11% in Q1 2022. These projections were based on
Bank Rate rising from its current 0.75% to 0.9% at the end of this year,
1.0% at end 2020 and 1.1% at end 2021.
-Bank economists forecast Q4 2018 growth would be 0.3% and Q1 2019
growth just 0.2%, with Q2 growth similar to Q1. These weak near term
growth rates are all below potential. While the output gap was reckoned
to be zero at present supply was expected to exceed demand near term,
with a negative output gap of -0.25% in Q1 2020.
Further out, however, bolstered by less restrictive monetary policy
than previously assumed around the world and the removal of Brexit
uncertainty, growth is expected to firm with a positive output gap of
0.75% in Q1 2022.
-The MPC said there was evidence from its own agents work and other
surveys that Brexit uncertainty was hitting economic activity harder
than previously thought. Business investment has been contracting, with
corporate activity delayed awaiting the denouement of the Brexit
negotiations. The agents survey found that around half of companies felt
they were not ready for a 'no deal, no transition' Brexit.
-Alongside Brexit questions the agents conducted a business pay
survey, which found average pay was expected to nudge up to 2.9% in 2019
from 2.8% in 2018.
London Bureau; e-mail: firstname.lastname@example.org