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BoE Officials Unanimously Keeps Bank Rate, QE Unchanged

BoE 052015

Bank of England policymakers unanimously voted to keep the monetary policy stance unchanged at the meeting held early this month and suggested that next action would be a hike in interest rate, but such a move is unlikely until 2016.

The Monetary Policy Committee voted 9-0 to hold the key interest rate at a record low of 0.50 percent and asset purchase programme at GBP 375 billion, the minutes of the meeting held on May 7 and 8 showed Wednesday.

For two members, the immediate policy decision remained finely balanced between voting to hold or raise the bank rate.

"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 minutes said.

Although two members still look close to renewing their previous call for an interest rate rise, Vicky Redwood, an economist at Capital Economics, expects them to remain in a minority for some time.

Inflation is expected to pick up notably towards the end of the year. Although it is likely that low inflation would necessitate further open letters during the course of the year, policymakers observed that in the absence of further falls in commodity prices, inflation rates close to zero were unlikely to endure for very long.

In April, inflation entered negative zone for the first time since 1960 due to falling food and transport costs. Consumer prices fell 0.1 percent after staying flat in March.

In the open letter to Chancellor last week, Governor Mark Carney said that inflation is likely to see a negative outturn at some point. Therefore, it is very likely that further open letters will be written in coming months, he said.

The MPC said it would seek to set monetary policy so that it would be likely that inflation would return to the 2 percent target within two years.

IHS Global Insight Economist Howard Archer said the bank will start inching interest rates up during the first half of 2016. It looks a very close call as to whether the BoE acts in the first or second quarter.

Policymakers expect the slack in the economy which is currently assessed to be around 0.5 percent of GDP to be fully absorbed within a year.

According to the Agents' Summary of Business Conditions, capacity utilization remained at broadly normal levels in manufacturing, but slightly above normal for services.

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