In early November the Bank of England released its Inflation Report, as recorded by their Monetary Policy Committee (MPC). The committee decided, by an 8-1 majority, to leave the Bank Rate at its historical low of 0.5%. There was one dissenting MPC member, Ian McCafferty, who would have preferred to see a 25 basis point (1/4%) increase. They did, however, unanimously vote to leave their purchase of assets at the current level of £375 billion. This is also colloquially known as their ‘Quantitative Easing’ programme.
As at the end of September, the Consumer Prices Index (CPI) stood at -0.1%, which is marginally more than 2% below the Bank’s own inflation target. They cite lower prices in food, imported goods and energy as the major factors here, with lower domestic cost growth as a lesser influence. The wider core inflation rate currently stands at 1%.
Whilst they believe that CPI will remain subdued at around the 1% level until Q3 or Q4 of 2016, the Bank did confirm that they are determined to return inflation to the 2% target range within two years in a careful and sustainable way, avoiding the danger of it overshooting, should the current disinflationary factors diminish. They also believe domestic momentum is strong, consumer confidence is high and wage growth is continuing to improve.
Given that the MPC believes that the Bank Rate will rise in due course, as inflationary factors reverse, it also expects any such rise to be more gradual and to a lower level than seen in previous economic cycles.
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