Bank of England: Watch Wages for Rate Signs

Samuel SharpFeb 03, 2017

Minutes of the latest Monetary Policy Committee (MPC) decision showed policymakers voted unanimously to keep United Kingdom rates on hold at 0.25 per cent as the bank made sweeping upgrades to its growth outlook.

The Bank's forecast for 2017 gross domestic product was lifted significantly to 2% from the 1.4% predicted in November and dire warnings about the impact of Brexit issued earlier past year.

Inflation is seen peaking at around 2.8 percent at the start of next year - way above the bank's 2.0percent target, but Carney was relaxed about that.

Members of the Bank's monetary policy committee voted unanimously to keep interest rates on hold at 0.25%, and the Bank's forecasts assumed no hike until the end of next year. Last May, he said that a vote for Brexit would pose an "immediate and significant threat" to the United Kingdom economy, increasing unemployment, hitting growth, possibly to the point of recession.

Inflation is already set to overshoot the Bank's 2 percent target in the coming months.

The wonder is now why on Earth the Bank of England kept interest rates at 0.25 per cent?

"The bank noted that "attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth".

It added that a solid global economy, surging stock markets and cheap borrowing were also helping support growth.

While that would be more than double the forecast the Bank made in August, a few weeks after the referendum, and higher than its November forecast of 1.4 percent, it would still represent a slight slowdown from previous year.

He said he expected a "significant slowing of consumer spending over the next year or two" as a strong increase in inflation eats into the spending power of many households.

"There are limits to the extent that above-target inflation can be tolerated", the minutes said. This could mean we see the first interest rate rise in more than a decade at some point this year, particularly if wage growth turns out stronger than expected.

The Bank of England has effectively written out any negative impacts to the United Kingdom economy pertaining to Brexit in their latest forecasts.

"For instance, if spending growth slows more abruptly than expected, there is scope for monetary policy to be loosened", it said.

"Since the November Inflation report there has been plenty of positive data, with growth of 0.6% in the final quarter".

Sterling began its descent at midday following the release of the central bank's February Inflation Report and interest rate decision.

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