Falling inflation defers interest rate rise…

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Inflation Report:

The Monetary Policy Committee (MPC) last week (20 June 2019)
voted unanimously to maintain Bank Rate at 0.75%. The committee also voted
unanimously to maintain the stock of corporate bond purchases and UK government
bond purchases.

The latest amiable inflation figures from the Office for
National Statistics (ONS) show that the consumer prices index (CPI) was bang-on
the Bank of England’s target at 2% in May, trending down from 2.1% in April, in
line with previous forecasts.

Lower transport costs had helped to bring down inflation in
May, which eased the pressure on the Bank of England’s monetary policy committee
(MPC) to increase interest rates above the current 0.75%.

With a backdrop of a tightening labour market, with wages
rising, a flat lining economy ahead of any Brexit progress, and a potential
rise in fuel prices following the rising tension in the Middle East, the
committee have seen fit to leave well alone for the time being.

In April inflation had just topped the 2% target, the first
time for several months, due to the removal of Ofgem’s energy price freeze,
which prompted calls for a rise this time, but the downward trend since has
abated that, providing some breathing space for the policy makers.

A spokesperson for the British Chambers of Commerce, told The Times newspaper:

“With inflation relatively subdued and against a backdrop of
heightened political and economic uncertainty, the case for raising interest
rates any time soon remains weak, despite recent warnings by some monetary
policy committee members�

Some of the MPC members had been expressing their intentions
to vote to implement monetary tightening this time, until the recent trend
became apparent.

Andy Haldane, the Bank’s chief economist, had said
previously:

“The time is nearing when a small rise in rates would
be prudent to nip any inflationary risks in the bud,� while Ben Broadbent, the deputy
governor, had said that rates might have to rise further than expected if the
economy continued on its present trajectory.

The Committee said that it expects the economy to develop
broadly in line with its May Inflation Report projections based on an
assumption of a smooth Brexit, and that an ongoing tightening of monetary
policy over the forecast period would be appropriate to “return inflation
sustainably to the 2% target at a conventional horizon.�

The MPC also said that “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 Committee will always act to achieve the 2% inflation target,� it said.

Bank Rate maintained at 0.75% – June 2019

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