‘Prospect of an early rate hike increase’ – NIESR Comment on MPC decision
- Yesterday the Bank of England’s Monetary Policy Committee voted 5-3 to keep Bank Rate unchanged at 0.25 per cent and maintained government bond purchases at £435bn and corporate bond purchases at £10bn
- This is despite consumer price inflation of 2.9 per cent in 12 months to May, well above the 2 per cent target and exceeding the Bank’s expectations.
Rebecca Piggott, Research Fellow at NIESR, said “The MPC voted narrowly to hold monetary policy unchanged, a closer vote than market expectations. This level of disagreement raises the probability of an interest rate rise in the near future and that would exert further pressure on household budgets, which are already under pressure from subdued real wage growth. Furthermore, it focusses the spotlight on the two forthcoming appointments to the MPC, which could tip the balance of future votes either way.
One important reason for the close vote was the latest inflation figure which surprised the Bank on the upside. We forecast consumer price inflation of 3 per cent and 2.8 per cent on average in 2017 and 2018 respectively, before a return to target in 2019.”
Note: NIESR’s latest quarterly forecast (published 10th May 2017) projects GDP growth of 1.7 per cent per annum in 2017 and 1.9 per cent in 2018 (see here for the associated press release).
Notes for editors:
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NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.
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