The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.
At its meeting ending on 20 June 2018, the MPC voted by a majority of 6-3 to maintain Bank Rate at 0.5%. The Bank’s chief economist, Andrew Haldane, along with 2 others voted to raise rates to 0.75%. This is the first time Mr. Haldane has voted against the majority view since he joined the Bank in 2014.
Although the BoE have kept interest rates on hold some economists believe an August rate rise is likely. In a similar scenario, the last time 3 members of the MPC “dissented” which was in June 2017, there was a rate rise in the following November.
The report by the MPC said, “CPI inflation was 2.4% in May, unchanged from April. Inflation is expected to pick up by slightly more than projected in May in the near term, reflecting higher dollar oil prices and a weaker sterling exchange rate. Most indicators of pay growth have picked up over the past year and the labour market remains tight, suggesting that domestic cost pressures will continue to firm gradually, as expected.”
The MPC also indicated that the poor economic growth figures of the first three months of a year was likely to prove “temporary” and that the speed of growth would pick up.
“A key assumption in the MPC’s May projections was that the dip in output growth in the first quarter would prove temporary, with momentum recovering in the second quarter,” the committee said.
“This judgement appears broadly on track. A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness in Q1 in part related to the adverse weather. Employment growth has remained solid.”
The MPC said prospects for global growth also remained strong, despite some weakness across Europe.
The report ended by saying, “the Committee’s best collective judgement remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”