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Financial News: BoE Unanimously Vote To Retain Policy; Raises Growth

BoE Unanimously Vote To Retain Policy; Raises Growth Forecast

02/02/2017 - 08:09:00 (RTTNews)

(RTTNews) - The Bank of England kept its record low interest rate and monetary stimulus unchanged on "Super Thursday" amid raising growth projections as the economy entered the year on a strong footing, withstanding the risk stemming from 'Brexit' talks that is set to begin as soon as in March.

The Monetary Policy Committee of the BoE, governed by Mark Carney, unanimously decided to hold the key bank rate at 0.25 percent and the corporate bond purchase plan at up to GBP 10 billion.

All members voted to continue the GBP 435 billion asset purchase programme. The decision was in line with economists' expectations.

The continuing suitability of the current policy stance depends on the trade-off between above-target inflation and slack in the economy, the bank said in the monetary policy summary.

The MPC said the policy can respond in either direction to changes to the economic outlook as they unfold.

At its February meeting, the MPC continued to judge that it remained appropriate to seek to return inflation to the target over a somewhat longer period than usual, and that the current stance of monetary policy remained appropriate to balance the demands of its remit.

Given the downside risks to growth and upside risks to inflation that Brexit is creating, ING Bank economist James Knightley forecasts no change in Bank Rate until 2019.

According to the Inflation Report, the fall in sterling will raise CPI inflation, which is likely to return to around the 2 percent target by February and then rise above it over the following months.

Inflation is forecast to rise to 2 percent in the first quarter of 2017, instead of 1.8 percent estimated earlier. Meanwhile, inflation is seen at 2.7 percent in the first quarter of 2018, slightly slower than the 2.8 percent previous projection.

The central bank further trimmed its unemployment rate forecast to 4.9 percent for the first quarter of 2017 from 5 percent.

Although economic growth remained resilient in the second half of 2016, it is projected to slow slightly to 0.5 percent in the first quarter of 2017 as households adjust their spending to lower real income growth.

Nonetheless, the bank lifted its 2017 outlook to 2 percent from 1.4 percent and the projection for 2018 was raised marginally to 1.6 percent from 1.5 percent.

The National Institute of Economic and Social Research, earlier this week, forecast the U.K. economy to grow 1.7 percent this year and 1.9 percent next year.

The BoE observed that since the vote to leave the EU, a key issue continues to be how much and how quickly demand and supply will be affected by the process of "Brexit".

At the press conference, Carney said stronger projection does not mean that the Brexit is without consequences. Uncertainty continues to weigh on business investment, he added.

On Wednesday, the U.K. Parliament voted in favor of the bill that permit the government to start 'Brexit' talks with the European Union. Prime Minister Theresa May has set March 31 as the deadline for starting official talks with the EU.

However, in order to invoke Article 50 of the Lisbon Treaty, the bill has to be adopted by the House of Lords. The bill will return to the upper house next week.

Brexit Secretary David Davis presented the government's White Paper on the exit process in the parliament today, saying the UK economy is proving resilient and the country enters these negotiations from a position of strength.

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