The Bank of England’s Monetary Policy Committee (MPC) at its meeting ending on 1 May 2019, voted unanimously to maintain Bank Rate at 0.75%.
The Committee’s updated projections for activity and inflation were conditioned on a path for Bank Rate that rises to around 1% by the end of the forecast period, lower than in the February Report. As with UK financial conditions more generally, the path has been heavily influenced by recent global developments, with forward interest rates in the United States and the euro area falling markedly. The MPC also noted previously that UK data could be unusually volatile in the near term, due to shifting expectations about Brexit in financial markets and among households and businesses.
It was highlighted in the report that ongoing Brexit uncertainties were having a particularly pronounced impact on business investment, which has been falling for a year. The MPC judges that there is currently a small margin of excess supply in the economy.
CPI inflation was 1.9% in March and is expected to be slightly further below the MPC’s 2% target during the first half of the forecast period, largely reflecting lower expected retail energy prices. The labour market remains tight, with the unemployment rate projected to decline to 3½% by the end of the forecast period. Annual pay growth has remained around 3½% and unit labour cost growth has strengthened to rates that are above historical averages.
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 respond. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.