Bank of England Holds Its Fire
Despite solid industrial production and factory output data released today and inflation that is twice as high as the Bank of England medium-term target of 2%, officials on the nine-member Monetary Policy Committee left the Bank Rate at 0.5%, which such has been since March 2009. In six steps from October 2008 to March 2009, the benchmark interest rate was cut from 5.0% to a tenth of that size, and the last cyclical peak from July 2007 to December 2007 was at 5.75% when U.K. CPI inflation hovered between 1.8% and 2.1%. At the February policy meeting four weeks ago, two of the nine policymakers, Weale and Dale, had voted for a 25-basis point rate hike, and a third, Andrew Sentance, recommended a 50-bp increase.
It wasn’t to be either then or today. British industrial production rose 0.5% in January and by 1.2% in November-January from the previous three-month period. Manufacturing output advanced 1.0% in January and was 6.8% greater than a year earlier. For the latest three months, factory output exceeded the year-earlier level by 5.5%. For further background on this meeting, see my earlier preview.
Policymakers also left the ceiling on their asset purchase plan unchanged at GBP 200 billion. The ceiling was raised last in November 2009 and reached three months later. Minutes of today’s meeting will be released on March 23rd. Only then will markets learn how many committee members dissented and whether, as in February, the wait-and-see majority has become even more predisposed to raising rates.
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