Wednesday, 20 May, 2015

BOE Officials Voted Unanimously as Slack Seen Eroded Within Year

(Bloomberg) — Bank of England policy makers said slack in the economy will probably be fully eroded within a year, signaling potential future inflation pressures that will require policy tightening. In the minutes of its May policy meeting, the Monetary Policy Committee said while there was uncertainty about estimates of spare capacity, the panel’s best collective view was that the level of slack was about 0.5 percent of GDP and “likely to be fully absorbed within a year.” The comments echo the MPC’s view in the Inflation Report last week that the next likely policy move would be an increase in the benchmark interest rate, which has been at a record-low 0.5 percent for more than six years. With the inflation rate below zero, there is no immediate pressure on the BOE to start policy tightening now, and markets aren’t pricing in a hike until mid-2016. The MPC voted 9-0 to keep the rate unchanged, though for two members the decision was “finely balanced.” “While there was a range of views over the most likely future path for bank rate, all members agreed that it was more likely than not that bank rate would rise over the three-year forecast period,” the BOE said in the minutes, published in London on Wednesday. The MPC met on May 7-8 and announced its decision on May 11 — a change from its usual timetable because of the general election on May 7. In the minutes, the committee noted the pound’s surge on May 8 after the “unexpectedly decisive results of the general election,” which saw Prime Minister David Cameron’s Conservative Party win a parliamentary majority. In its analysis of the economy, the MPC said it expects economic growth to accelerate this quarter and the dip in inflation to be temporary. Consumer-price growth will probably “pick up notably towards the end of the year,” it said. Britain’s inflation rate fell below zero for the first time in more than half a century in April, as the drop in food and energy prices depressed the cost of living. The central bank forecast last week that inflation will average 0.6 percent this year and 1.6 percent in 2016. It will return to the BOE’s 2 percent target in the second quarter of 2017. Archr LLP is Authorised and regulated by the Financial Conduct Authority (FCA reference 617163). Archr LLP is not covered by the Financial Services Compensation Scheme (FSCS). Archr is registered in England and Wales No. OC371018. Registered office Chancery House, 30 St Johns Road, Woking, Surrey, GU21 7SA This message may contain confidential or privileged information. If you are not the intended recipient, please advise us immediately and delete this message. The unauthorised use, disclosure, distribution and/or copying of this e-mail or any information it contains is prohibited. This information is not, and should not be construed as, a recommendation, solicitation or offer to buy or sell any securities or related financial products. This information does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it. You are receiving this email because you are a valued client of Archr.