- U.K. Leaves Rates Unchanged, May Not Cut Rates Further
- Inflation to Hit 2.7 Percent in 2017
The Bank of England (BoE) left interest rate unchanged at a record-low of 0.25 percent on Thursday, but raised inflation and growth forecasts.
According to the governor of the Bank of England, Mark Carney, inflation could hit 2.7 percent in 2017, even though the economy is doing better than projected.
The governor said the current BoE framework works, and doesn’t need to change, but that over-reliance on weak pound to stimulate the economy will have costs. By this, he was referring to the continuous increase in the cost of imported goods, consumer prices and the drop in profits of firms that generate the bulk of their revenue from overseas. A situation that could impact the labour market and consumer spending that has been supporting the economy if not well managed.
The governor further stated that the apex bank has not changed assumption about Brexit forecast, and that U.K economy supplies could be affected by the EU deal, this is because EU deals are the biggest determinant of the UK economic outlook going forward.
While, saying the apex bank isn’t indifferent to the exchange rate, he made mention of the possibility of the institution using monetary policy to manage inflation per adventure things deteriorate from projection.
“Monetary policy can respond, in either direction, to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2 percent target.”
The pound climbed and British government bond prices fell sharply as the BoE shifted to a neutral stance on what its next move on interest rates would be.
The BoE’s policymakers voted 9-0 at their November meeting to keep rates on hold at 0.25 percent, the BoE said on Thursday, in line with economists’ expectations.
Also, there was unanimous support to stick with August’s plans to buy a total 435 billion pounds of government debt and 10 billion pounds of corporate bonds.