Bank of England votes to hold base rate at 0.25pc

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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