The BOE minutes for the November meeting affirmed that the UK economy was undergoing a sustainable recovery. Yet, policymakers were uncertain about the outlook after the end of this year. In the quarterly inflation report released last week, policymakers revised lower the inflation forecasts and forecast that the unemployment rate might fall to the 7% threshold earlier than previously anticipated. The BOE left the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. The decision was made unanimously.
On domestic economic developments, the BOE acknowledged a steady pickup in economic activities, noting that "momentum had picked up further since the time of the August Report and it was likely that GDP would grow at a little above its long-term average rate during the second half of the year". Business surveys and indicators of the housing market showed an "even faster rate of expansion, although they had also suggested a faster rate of growth in Q3 than the 0.8% the ONS had published in its preliminary estimate". It also warned that the economy "remained vulnerable to disorderly adjustment in the Euro area and in some emerging economies".
The central bank appeared satisfied with the decline in inflation last month and saw little inflation risks going forward. According to the minutes, "some indicators of inflation expectations had risen. But these moves were thought to be of little economic significance". Policymakers noted that "there were few indications that higher inflation expectations were currently a major consideration in wage demands or companies' planning assumptions, and the lower rate of inflation might itself reduce expectations". In short, policymakers forecast that "medium-term inflation expectations remained sufficiently well anchored".
On the monetary outlook, the minutes stated that "once unemployment had reached 7%, the Committee would reassess what it had learned about the nature of the recovery. In the meantime, the Committee would continue to judge the appropriate stance for policy each month in line with the guidance given in August". The central bank reiterated that 7% is not an automatic trigger of rate hike, saying, "...with the proviso that medium-term inflation expectations remain sufficiently well-anchored, the projections for growth and inflation under constant bank rate underlined that there could be a case for not raising bank rate immediately when the 7% unemployment threshold was reached".
The pound soared ahead of the minutes but pared some gains after the document turned out to be less hawkish that expected. The policy rate is expected to stay at exceptionally low level for some time after the unemployment rate fall to the more preferred levels.
On domestic economic developments, the BOE acknowledged a steady pickup in economic activities, noting that "momentum had picked up further since the time of the August Report and it was likely that GDP would grow at a little above its long-term average rate during the second half of the year". Business surveys and indicators of the housing market showed an "even faster rate of expansion, although they had also suggested a faster rate of growth in Q3 than the 0.8% the ONS had published in its preliminary estimate". It also warned that the economy "remained vulnerable to disorderly adjustment in the Euro area and in some emerging economies".
The central bank appeared satisfied with the decline in inflation last month and saw little inflation risks going forward. According to the minutes, "some indicators of inflation expectations had risen. But these moves were thought to be of little economic significance". Policymakers noted that "there were few indications that higher inflation expectations were currently a major consideration in wage demands or companies' planning assumptions, and the lower rate of inflation might itself reduce expectations". In short, policymakers forecast that "medium-term inflation expectations remained sufficiently well anchored".
On the monetary outlook, the minutes stated that "once unemployment had reached 7%, the Committee would reassess what it had learned about the nature of the recovery. In the meantime, the Committee would continue to judge the appropriate stance for policy each month in line with the guidance given in August". The central bank reiterated that 7% is not an automatic trigger of rate hike, saying, "...with the proviso that medium-term inflation expectations remain sufficiently well-anchored, the projections for growth and inflation under constant bank rate underlined that there could be a case for not raising bank rate immediately when the 7% unemployment threshold was reached".
The pound soared ahead of the minutes but pared some gains after the document turned out to be less hawkish that expected. The policy rate is expected to stay at exceptionally low level for some time after the unemployment rate fall to the more preferred levels.
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