Policy Summary and Minutes of the MPC Meeting Ending 200319
The Bank of
England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2%
inflation target, and in a way that helps to sustain growth and employment. At
its meeting ending on 20 March 2019, the MPC voted unanimously to maintain Bank
Rate at 0.75%.
The Committee voted unanimously to maintain the stock of sterling
non-financial investment-grade corporate bond purchases, financed by the
issuance of central bank reserves, at £10 billion. The Committee also voted
unanimously to maintain the stock of UK government bond purchases, financed by
the issuance of central bank reserves, at £435 billion.
Since the Committee’s previous meeting, the news in economic data has
been mixed, but the MPC’s February Inflation Report projections appear on
track. In those projections, a weaker near-term outlook was expected to lead to
a small margin of slack opening up this year. Thereafter, demand growth
exceeded the subdued pace of supply growth and excess demand built over the
second half of the forecast period.
The broad-based softening in global GDP and trade growth has continued.
Global financial conditions have eased, in part supported by announcements of
more accommodative policies in some major economies.
Shifting expectations about the potential nature and timing of the
United Kingdom’s withdrawal from the European Union have continued to generate
volatility in UK asset prices, particularly the sterling exchange rate. Brexit
uncertainties also continue to weigh on confidence and short-term economic activity,
notably business investment.
Employment growth has been strong, although survey indicators suggest
that the outlook has softened. Most indicators of consumer spending are
consistent with ongoing modest growth. As the Committee has previously noted, short-term
economic data may provide less of a signal than usual about the medium-term
CPI inflation rose slightly to 1.9% in February and is expected to
remain close to the 2% target over coming months. The labour market remains
tight and annual pay growth, having risen through 2018, has remained around
3½%. Given continuing weakness in productivity growth, growth in unit wage
costs has also risen, although other indicators of domestically generated
inflation have remained modest.
The Committee’s February
Inflation Report projections were conditioned on a smooth adjustment
to the average of a range of possible outcomes for the United Kingdom’s
eventual trading relationship with the European Union. The Committee continues
to judge that, were the economy to develop broadly in line with those
projections, an ongoing tightening of monetary policy over the forecast period,
at a gradual pace and to a limited extent, would be appropriate to return
inflation sustainably to the 2% target at a conventional horizon.
The economic outlook will continue to depend significantly on the nature
and timing of EU withdrawal, in particular: the new trading arrangements
between the European Union and the United Kingdom; whether the transition to
them is abrupt or smooth; and how households, businesses and financial markets
The appropriate path of monetary policy will depend on the balance of
these effects on demand, supply and the exchange rate. The monetary policy
response to Brexit, whatever form it takes, will not be automatic and could be
in either direction.
The MPC judges at this month’s meeting that the current stance of
monetary policy is appropriate. The Committee will always act to achieve the 2%