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Bank of England Minutes

James Boston
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Bank of England Minutes

There was no real surprise element to the Bank of England (BoE) minutes released this morning. As has become the norm these days the Monetary Policy Committee (MPC) once again voted unanimously, 9-0, to hold the base rate at 0.5%, a level it has remained at for over five years.

At a speech earlier this week the BoE Governor, Mark Carney, deliberately hinted that interest rate rises might take place in the UK sooner rather than later. This was interpreted as meaning monetary tightening before the end of this year and markets reacted accordingly. This in turn led to de facto monetary tightening based purely on the Governor’s rhetoric.

Further analysis of Carney’s remarks, however, show that the BoE chief was not in fact outlining imminent action by the Bank on interest rates. Reading between the lines it becomes clear that the MPC is quiet prepared to stand back and watch developments over the coming few quarters before it embarks on definitive action. The developments that the BoE is particularly interested in are rising inflation and the take up of slack in the employment markets.

It is unlikely at this stage that the BoE would move on rates while inflation remains below target and wage growth in turn stays below the level of general price growth. This is likely to remain the case even if the unemployment rate continues to fall. Given that Governor Carney expressed his belief that these indicators would slow up in the latter half of this year it becomes evident that interest rate rises are on the long finger.

The house price asset bubble in the UK has been of concern to markets recently, traditionally this would be addressed by a general tightening of monetary policy. This has been emphatically ruled out by the Bank of England on this occasion which is now looking towards a more macroprudential approach to cooling the runaway property market in certain parts of the UK.

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