Thursday, September 4, 2014

BOE maintains rate, stock of assets, as expected

    The Bank of England (BOE) maintained its benchmark Bank Rate at 0.5 percent, as widely expected, along with its stock of assets that it has purchased at 375 billion pounds.
    In addition, the BOE - expected to become the first major central bank to raise rates since the global financial crises - said it would reinvest 14.4 billion of cash it received in connection with the redemption of the September UK Treasury bond that it holds in its asset purchase facility.
    Minutes of today's meeting of the BOE's Monetary Policy Committee (MPC) will be published on Sept. 17.
    The BOE has maintained its 0.5 percent policy rate since March 2009 but is expected to raise rates in the first quarter of next year, with some economists looking for a rise in the fourth quarter of 2014.
     Minutes from the previous MPC meeting in August showed that two of its nine members favored an immediate 25 basis point rate hike, the first time since July 2011 the MPC was split in its view.
     Economic activity in the United Kingdom has been accelerating this year, with Gross Domestic Product up by an unchanged 0.8 percent in the second quarter from the first for annual growth of 3.2 percent, up from 3.0 percent in the first quarter and 2.7 percent in the fourth quarter of 2013.

   Unemployment has also been declining - it fell to 6.4 percent in June from 6.5 percent in May - but wages and overall labour costs remain weak, reducing the pressure on inflation.
    Headline inflation eased to 1.6 percent in July from 1.9 percent in June, below the BOE's 2.0 percent target.
    The two members of the MPC that voted to raise rates last month - Ian McCafferty and Martin Weale - argued that the BOE should raise rates now to get ahead of the expected rise in wages, allowing the central bank to make gradual rate increases as the economy strengthens.
    However, the majority of the MPC voted against an increase, saying the remained insufficient evidence of inflationary pressures.


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