The Bank of England’s committee of rate-setters will be keeping interest rates at record lows this week.
A renewed drop in oil prices and slower pay growth are set to weigh on the Bank’s inflation outlook. Last month it voted to keep rates at 0.5 per cent – it aims to bring inflation to two per cent over the next two years. Inflation was 0.1 per cent in November, while rates have been at rock bottom since March 2009.
The thinking behind the interest rate decision will also be revealed when the minutes are released at the same time as the decision on Thursday – the result of an overhaul of the Bank’s communications introduced over summer.
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“We believe the tone of the minutes is likely to remain broadly the same as that of the December meeting, highlighting uncertainty among Committee members and muted underlying inflationary pressures, which, if anything, are biased to the downside,” said economists Fabrice Montagne and Andrzej Szczepaniak,
“Further, while we expect the split of the vote to remain unchanged, we cannot rule out Ian McCafferty withdrawing his vote for a hike in light of the recent fall in oil prices and market volatility, as he did in January 2015 following the December 2014 oil price fall.”
“The Bank of England is likely to look through recent market volatility, but the fall in the oil price and its likely impact on inflation and possibly wages may attract some attention,” economists at BNP Paribas said.
“Recent softening in UK data and Brexit fears have flattened near term rate expectations, and they remain shallower than the projections of the November Inflation Report. Whether this pricing is warranted will be tested on Thursday following the Bank of England’s Monetary Policy decision and meeting minutes. Whilst we expect policy to remain on hold, information regarding the path ahead might be gleaned from their discussion of key developments,” economists at Investec said.
Market expectations have been pushed out since the beginning of the year to March 2017 from December 2016.