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Bank of England Leaves Interest Rates Unchanged

Kitco News

Editor's Note: Updating earlier story with more details from MPC statement.

(Kitco News) -The Bank of England’s Monetary Policy Committee left interest rates unchanged Thursday. Likewise, officials did not make changes in the bank’s asset-purchase program.

The decision to leave the bank rate at 0.50% was approved in a 7-2 vote, the bank said.

“The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion,” said a statement from the MPC following its monetary-policy meeting. “The Committee also voted unanimously to maintain the stock of U.K. government bond purchases, financed by the issuance of central bank reserves, at £435 billion.” 

 Markets were not expecting a rate hike at this meeting. However, some, but not all, analysts were looking for policymakers to signal that a potential rate hike could occur in May.

Officials said recent economic releases are consistent with the MPC’s February views on the medium-term outlook. U.K. fourth-quarter gross-domestic-product growth was put at 0.4%.

“The latest activity indicators suggest that the underlying pace of GDP growth in the first quarter of 2018 remains similar to that in the final quarter of 2017,” the MPC said.  

Meanwhile, consumer price inflation – which was 2.7% in February – is expected to ease in the short term but remain above the 2% target, the MPC said.

“Pay growth continued to pick up,” said the statement. “The unemployment rate remained low in the three months to January. The firming of shorter-term measures of wage growth in recent quarters and a range of survey indicators suggest pay growth will rise further in response to the tightening labor market. This provides increasing confidence that growth in wages and unit labor costs will pick up to target-consistent rates.”

Officials said the U.K.’s withdrawal from the European Union is the most significant source of uncertainty for the economic outlook.

“As in February, the best collective judgment of the MPC remains that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon,” the statement said. “All members agree that any future increases in bank rate are likely to be at a gradual pace and to a limited extent.”

As of 8:04 a.m. EDT, the British pound was trading at $1.4181. Two minutes prior to the BOE decision, the pound was at $1.4165.

Comex April gold reacted little to the BOE news, remaining at $1,330.10 several minutes after the announcement, the same price as just ahead of time.

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