BoE leaves Bank Rate at 0.1%, as widely expected

The Bank of England (BoE) announced its Monetary Policy Committee (MPC) voted 9-0 to keep the Bank Rate at 0.1 percent at its September meeting, as widely expected.

The MPC also voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases at GBP20 billion and voted by a majority of 7-2 to continue with the existing programme of UK government bond purchases at GBP875 billion, thus maintaining the total target stock of asset purchases at GBP895 billion.

In its statement, the BoE notes:

• Since the August MPC meeting, pace of recovery of global activity has showed signs of slowing. Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures have remained strong and there are some signs that cost pressures may prove more persistent;
• Some financial market indicators of inflation expectations have risen somewhat, including in UK;
• BoE has revised down expectations for the level of UK GDP in 2021 Q3 by around 1% since the August Report, leaving the expected level of Q3 GDP around 2.5% below its pre-Covid level;
• Downward revision in part reflects emergence of some supply constraints on output;
• Uncertainty around outlook for labour market has increased. Key questions include how the economy will adjust to closure of furlough scheme at the end of September; the extent, impact and duration of any change in unemployment; as well as degree and persistence of any difficulties in matching available jobs with workers;
• MPC will review these, along with other, developments as part of its forthcoming forecast round ahead of the November Monetary Policy Report;
• CPI inflation is expected to rise further in the near term, to slightly above 4% in 2021 Q4, owing largely to developments in energy and goods prices. The material rise in spot and forward wholesale gas prices since the August Report represents an upside risk to MPC’s inflation projection from April 2022;
• MPC’s central expectation continues to be that current elevated global cost pressures will prove transitory;
• Given the lag between changes in monetary policy and their effects on inflation, MPC, in judging appropriate policy stance, will as always focus on medium-term prospects for inflation, rather than factors that are likely to be transient;
• At its previous meeting, MPC judged that, should the economy evolve broadly in line with central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting inflation target sustainably in medium term. Some developments during intervening period appear to have strengthened that case, although considerable uncertainties remain;
• Committee will be monitoring closely incoming evidence regarding developments in labour market, and particularly unemployment, wider measures of slack and underlying pay pressures, extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations;
• Committee judged that existing stance of monetary policy remained appropriate