BOE Keeps Key Rate at Record Low as Oil Damps Inflation Outlook

In the past week, six banks including Goldman Sachs Group Inc., Bank of America-Merrill Lynch and JPMorgan Chase & Co. have pushed back their forecasts for the timing of the first rate increase to the fourth quarter. She remarked, “Some of the recent data from the central bank itself, has shown a bit of a slowdown, some of the purchasing managers” index data is not meeting the Bank of England’s own expectations’. It will provide a more detailed assessment of the outlook with next month’s decision, when it publishes its quarterly Inflation Report.

“Recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets”, the BoE said Thursday.

And on confidence in the economy: “Business surveys imply that the near-term outlook for aggregate [economic] activity is slightly weaker”.

The drop in oil prices has sparked worry, even though Britain’s growth is among the strongest of developed countries.

“Productivity growth appears to have recovered somewhat over 2015, but the underlying supply capacity of the economy, and therefore the degree of inflationary pressure resulting from a given pace of demand growth, remain hard to judge”. The BOE said pay growth remains “restrained” and that it’s dipped in recent months.

The BOE’s decision comes amid signs the United Kingdom economy slowed at the end of 2015 and increasing concern about global prospects for the year ahead.

“In addition, sterling’s slide to five-year lows against the dollar at $1.44 and an 18-month trough against the euro at around €1.32 buys governor Mark Carney some time, as this effectively eases policy for him by giving exporters a boost”.

“We don’t know when the Bank of England will change the base rate, but we do know preparing early and helping homeowners understand their options is the first step in helping Britain get #ReadyForRateRise”.

“Ian McCafferty preferred to increase Bank Rate by 25 basis points, given his view that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections”. This guidance is an expectation, not a promise.

“While the chances of a later hike are clearly building, we continue to think that the Monetary Policy Committee will hike rates this year, much sooner than the market expects”, Capital Economics economist Paul Hollingsworth said.