The Bank of England base rate will remain at 0.25% following a majority vote in favour of doing so by the Monetary Policy Committee (MPC).
Eight of the nine members of the MPC voted to keep Bank Rate at 0.25%, with only Kristin Forbes, who is due to step down from the MPC in June, voting to raise the base rate to 0.5%.
There is to be no change to the Bank’s £10bn asset purchase programme of buying sterling non-financial investment grade corporate bonds, as the MPC voted unanimously to continue with the initiative. The committee also voted to maintain a £435bn stock of UK gilt purchases, as financed by central bank reserves.
The MPC expects the UK’s consumer price index (CPI) inflation to rise from January’s 1.8% to above the 2% target over the coming months, and predicts that it will peak at approximately 2.75% at the beginning of 2018, before floating back down to the target level.
In its meeting minutes, the MPC noted that: “The projected overshoot entirely reflects the expected effects of the drop in sterling.”
Following the vote, sterling rose 0.5% against the dollar, which was said to be a result of Ms Forbes’ vote. However, despite her voting in favour of a 0.25% rise to base rate, economists are not predicting a rate rise in the near future.
Kallum Pickering at Berenberg Bank, said: “There is a clear case for tighter monetary policy in the UK. The economy is in its eighth year of expansion, unemployment is at a record low, and households are gearing up again.”
“As our base case, we look for a 0.25 percentage point first rate hike in the second quarter of 2018, with a 30pc chance the Bank of England raises the bank rate earlier. After the first hike, the Bank will likely continue to proceed with extra caution, with small and infrequent rate hikes signalled far in advance, and with a strong bias toward remaining in neutral as and when risks to growth surface.”
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