Daily Management Review

The Bank of England: Incentives can be reduced soon


09/14/2017


The Bank of England said that the regulator might see a need to reduce incentives in the coming months. As a result of the September meeting, the central bank decided to leave the benchmark interest rate at a record low 0.25% per annum.



Edgepedia
Edgepedia
Seven members of the Bank of England Monetary Policy Committee voted to maintain the rate at the same level. Two more committee members - Ian McCafferty and Michael Saunders - continued to insist on raising the rate by 25 basis points.

The regulator also did not begin to change the volume of the asset purchase program - 435 billion pounds ($ 574.2 billion) - and retained the volume of buying corporate bonds at 10 billion pounds.

Both decisions of the Central Bank of Great Britain coincided with the forecasts of analysts.

Most members of the Committee on Monetary Policy considered that if the economy develops as predicted, "some reduction in monetary incentives is likely to be appropriate in order to return inflation to the target level in the coming months."

The vote on leaving the European Union overshadowed the economic outlook for the UK, triggering a drop in the pound sterling and accelerating inflation. The Central Bank currently expects that the price growth rate will exceed 3% next month and will remain above the 2% target for several years.

On Thursday, members of the committee also repeated the warning that it might be necessary to tighten monetary and credit policy "to a somewhat greater extent" than markets assume. However, any rate increases will be gradual, the regulator said.

Bank of England officials are forecasting growth of the economy by 0.3% in the third quarter. Nevertheless, slow wage growth puts pressure on consumer spending. However, uncertainty about the future of the country after Brexit forces companies to limit investment and costs. These factors remain "significant risks" for the forecast, the Bank of England said.

After the meeting’s results were announced, the pound sterling rate accelerated the growth and increased to the dollar by 0.7% compared with the close of trading on Wednesday to $ 1.3306. Before the announcement of the Bank of England's decision, the pound sterling was trading at $ 1.3270.

Earlier, consumer prices in the UK in August jumped 2.9% in annual terms after rising by 2.6% in July. Meanwhile, in the UK there are record employment and a growing shortage of qualified personnel. The unemployment rate dropped to 4.3%, having reached a minimum since 1975.

From the perspective of investors, the prospect of tightening monetary policy by the Bank of England at the beginning of next year has become more realistic after the data on inflation for August, which were published on Tuesday. Before the announcement of the Central Bank's decision on Thursday, traders estimated about 80% the probability of a rate hike in February, compared to 44% last week.

This decision was the first for member of the Committee on Monetary Policy Dave Ramsden, who replaced Charlotte Hogg, notes Bloomberg. The Committee met in full from nine members for the first time since March.

source: bloomberg.com






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