The monetary policy committee of the British central bank decided to keep the British key interest rate at historic lows. After revise downwards the short-term outlook for inflation, the British central bank should only enact a rise in interest rates by the middle of next year.
The Bank of England (BoE) has announced the results of the vote of the members of the monetary policy committee, which decided by a large majority to keep the policy rate UK at 0.5%, remaining at the lowest level ever. The downward revision of the BoE’s forecasts for inflation in the short term infers that the monetary authority will not enact any rise in interest rates in 2015.
The indication of the vote were announced this Thursday, August 6, one minute after noon: eight of the members of the monetary committee of the BoE voted in favor of maintaining the interest rate at minimum historical, and only one (Ian McCafferty) voted to the contrary. McCafferty claimed an increase of 0.25 percentage points of interest to a rate of 0.75%.
The vote was something unexpected. The Guardian, for example, states that the economists of the “city” London believed that at least two or three members of the monetary committee would support an interest of the rise further during the current month of August.
The monetary authority led by Mark Carney published simultaneously for the first time, quarterly economic updates (Inflation Report), the decision on the interest rate and also the minutes for the last meeting. Due to this reason, this day has been classified in “Super Thursday”.
In the minutes of meeting, the BoE maintained that the evolution of inflation does not allow yet to adopt a decision of rising interest: “The short-term outlook for inflation remains unchanged.” The institution chaired by Carney believes that “the fall in energy prices in recent months, will continue to push inflation at least until the middle of next year.” The current strength of the pound is also a factor considered by the BoE as a deterrent to an immediate rise in interest rates.
The central bank thus changed the forecast for inflation to 0.3% in 2015, instead of the 0.6% previously estimated. According to the BoE, the inflation rate should only rise to 1.5% next year. The monetary authority believes that inflation will remain close to zero for at least the next two months, anticipating that inflation will only approach the desired target of 2% in about two years. This is, cites the Guardian, the increase in interest rates happen in line with market expectations. What would the first rise in interest rates in mid-2016, with borrowing costs to rise to 1.5% at the end of 2017.
The decision of the monetary authority seems It is being well received. The British Chamber of Commerce reminded that a “premature” rise could penalize economic recovery.
In a press conference, Mark Carney revealed that the rise of interest process will happen in a “gradual and limited,” stressing that “the trajectory is more important than the ‘timing’ of the first ascent.” The governor of the British central bank acknowledged that the most significant development during the last year is related to the fall in inflation, which noted to have reached 0% in June.
In a press conference, Mark Carney also showed the international scene as contributing to the behavior of inflation. The situation in Greece and China were listed by Carney, who also stressed the importance to “aggregate demand” the slowdown of the Chinese economy
(Last updated news at 13.35 with title change)
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