The latest minutes from the Monetary Policy Committee have been published this morning by the Bank of England, shortly ahead of the Budget.
These minutes always provide an interesting insight into the current thinking from the Bank of England and can sometimes be used to predict future monetary policy.
At a headline level, it is no surprise to see that all nine members of the MPC voted in favour of keeping interest rates on hold at 0.5% in March.
This is consistent with our expectation for interest rates to remain low for the rest of this year and probably for most of next year as well. Investors and borrowers should consider planning their finances accordingly.
Two of the nine members voted in favour of another extension to the asset purchase programme of quantitative easing.
David Miles and Adam Posen wanted to increase the size of QE by a further £25bn to a total of £350bn, with the other seven members voting to keep the total size of the programme at the current total of £325bn.
Depending on the performance of the UK economy over the coming months, we do expect to see another round of QE introduced later this year.
Looking through the minutes, here are some other observations.
Some of the economic indicators considered by the Bank point to a gradual recovery in the state of the global economy. They specifically mention the JPMorgan Purchasing Managers’ Index, a global composite index, which suggests more globally diverse economic growth than that previously seen.
Within the minutes, a section is devoted to commentary on the oil price. As this can act as a brake on economic growth, it is an important consideration in an economy where growth is febrile.
The MPC notes that oil has increased in price by around 12% since the start of January. This was mainly driven by supply rather than demand factors but also the improved outlook for global economic activity over the longer term.
The outlook for crude oil prices represents a clear risk which could easily feed through into inflation figures.
Consumer spending indications are mixed according to the Bank. Retail sales were in positive territory in January and February, but other indicators such as the CBI Distributive Trades Survey showed broadly flat activity.
Looking at inflation, the MPC commented that the recent falls in price inflation had been as expected.
What happens next with price inflation is becoming harder to accurately predict. Seasonally adjusted annualised monthly inflation rates are higher than the government target, which suggests that price inflation might not fall to below target as the Bank was recently expecting.
These minutes contain a less confident view of the Bank meeting its price inflation target over the coming years and that is noteworthy.
Photo credit: Flickr/howzey
