Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.

Since the May Inflation Report, market interest rates have risen sharply internationally and asset prices have been volatile. In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time. Twelve-month CPI inflation rose to 2.7% in May and is set to rise further in the near term. Further out, inflation should fall back towards the 2% target as external price pressures fade and a revival in productivity growth curbs domestic cost pressures.

At its meeting today, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report. The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.

The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds. This analysis would have an important bearing on the Committee’s policy discussions in August.

In the light of these considerations, the Committee voted to maintain the size of its programme of asset purchases financed by the issuance of central bank reserves at £375 billion. The Committee also voted to maintain Bank Rate at 0.5%.

The minutes of the meeting will be published at 9.30am on Wednesday 17 July.

Commenting, Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said:

Bank of England -

Bank of England –

The run of stronger data has meant that the chances of more QE have been receding by the month. And the very encouraging PMI data from earlier this week had reduced the chances of a July move to almost zero.

The most interesting aspect of the July decision will be the voting pattern. There is a perception that Mark Carney will push for more activist monetary policy, but we do not see a lot of evidence to back this up and would not be surprised if he voted with the majority. And given the strength of the recent data, we could easily see one of the two members who have previously voted for more QE moving back across the table to re-join the majority.

As things stand, the only way that we can see further QE happening is if the Bank decides that gilt yields are rising too quickly and need to be reined in.”

Commerzbank said in its economic briefing that "The minutes of today's meeting – due for release on 17 July – will be scrutinised for any change of tone. MPC member David Miles has been pushing for an extension of QE since last November, and was subsequently joined by two other colleagues, one of whom – former Governor King – has now left the Committee. Thus, the key point of interest in the minutes will be how Mr Carney voted on this issue."

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