Bank of England decides in favor of keeping rates unchanged in its January monetary policy meeting

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Updated on Mar 11, 2020
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  • Bank of England decides in favor of keeping rates unchanged in its January monetary policy meeting.
  • Base rate remained untouched at 0.75% after policymakers voted 7-2 in favor of no change.
  • Sterling traded 0.6% higher against USD in the forex market after the BoE’s announcement.
  • BoE cut its estimate for quarterly GDP to zero with forecast for economic growth at 0.8% in 2020.

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The Bank of England (BoE) decided in favor of keeping rates unchanged on Thursday in its last monetary policy meeting presided by Governor Mark Carney.

As per the sources, the base rate remained untouched at 0.75% following the BoE’s policymakers voting 7-2 in favor of no change in the monetary policy. Sterling was seen trading around 0.6% higher against the greenback in the forex market after the BoE’s announcement. Cable touched the 1.3110 level on Thursday.

Confidence And Activity Improved After The UK’s General Election

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The UK’s GDP remained under pressure amidst the complications of Brexit that saw a few of the policymakers including Governor Carney having hinted at the need for a rate cut. The recent economic data in January, however, that suggested improvement in confidence and activity after PM Johnson’s victory in the UK’s general election on December 12th, the Bank of England has decided to wait before the next rate cut is announced.

As per the analysts, it is a crucial time for the UK’s economy as it is set to exit the European Union on Friday at 11 p.m. In the upcoming months, both the parties will extend negotiations to strike a broader trade deal.

The Bank of England, according to the experts, came out as one of the very few that sidestepped monetary policy leniency amidst the global economic slowdown. In 2019, 131 rate cuts in total were announced by central banks from around the globe.

The BoE, however, acknowledged that the outlook is likely to remain uncertain in the upcoming months. The central bank estimated a weak 0.8% economic growth in 2020 versus last year’s 1.3%. Following the transition period, the bank expects the UK’s economy to grow at a pace of 1.5% in 2021.

BoE Curtailed Its Estimate For Quarterly GDP To Zero

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UK’s central bank had anticipated 0.2% for GDP in the fourth quarter. As of December, the forecast was curtailed to 0.1% instead. In its monetary policy meeting in January, the BoE said that its estimate for quarterly GDP is further down to zero.

Consumer Price Index (CPI) inflation dropped to a 1.3% rate last month. Core CPI inflation, on the other hand, dropped to 1.4% while core services inflation kept under its target consistent range. However, the bank expressed confidence that with added clarity regarding Brexit, inflation and growth are expected to catch up the pace in 2021. By the end of the next year, the bank remarked, inflation is likely to be recorded around the 2% target.

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