Bank of England keeps base rate at 0.1%, QE programme unchanged

The Bank of England voted unanimously to keep the Bank Rate unchanged at 0.1% on Thursday, as it judged that the existing stance of monetary policy remained appropriate.

The Monetary Policy Committee voted 8-1 to keep its Asset Purchase Facility unchanged at £895bln (£875bln in gilts and £20bln in corporate bonds). Outgoing chief economist Andy Haldane was the sole dissenter on the Committee. Haldane, who was taking part in his last meeting, preferred to reduce the stock of gilts purchased by £50bln to £825bln.

Inflation and the economy
The central bank said that since their May meeting, developments in global GDP growth have been somewhat stronger than anticipated, particularly in advanced economies.

They also highlighted that global price pressures have picked up further, reflecting strong demand for goods, rising commodity prices, supply-side constraints and transportation bottlenecks.

The BoE said this has become apparent in consumer price inflation but noted that financial market measures of inflation expectations suggest the near term strength in inflation is expected to be transitory.

The Committee’s own expectation is that the direct impact of rises in commodity price on CPI will be transitory, seeing a temporary period of strong GDP growth and above-target CPI, after which both growth and inflation will fall back.

“The Bank’s projections of contained inflation in the medium term are not without merit and there are still deflationary forces in today’s global economy, not least the possibility the pandemic may yet throw another curve ball that forces us to erect social barriers once again,” said Laith Khalaf, financial analyst at UK based investment platform AJ Bell.

Guidance
There is little hint that removal of stimulus will happen any time soon and the MPC seems comfortable to look through any near term rise in inflation.

“In judging the appropriate stance of monetary policy, the Committee will, consistent with its policy guidance and as always, focus on the medium-term prospects for inflation, including the balance between demand and supply, and medium-term inflation expectations, rather than factors that are likely to be transient,” the Bank of England said.

All eyes will now turn to the central bank’s August meeting where there will be a new set of economic projections and there will be a clearer picture on the strength of the economic recovery.