The Bank of England's Monetary Policy Committee (MPC) voted to maintain the Bank Rate at 0.25 per cent and continue with UK non-financial corporate bonds purchases of up to £10 billion and to maintain the stock of UK government bond purchases at £435 billion.

The MPC has upgraded its outlook for growth in the UK economy over the forecast period, reflecting fiscal stimulus announced in the Chancellor's Autumn Statement, firmer momentum in global activity, higher global equity prices and more supportive credit conditions. Domestic demand has been stronger than expected with few signs of an anticipated slowdown following the referendum to leave the European Union. However, the MPC expects that continued moderation in pay growth and high import prices resulting from the pound sterling's depreciation are likely to slow real household income growth over the next few years, which will likely lead to a slowing of real consumer spending as well.

Finally, the MPC notes that monetary policy cannot prevent the real adjustment that will be necessary following the UK's exit from the EU and the resulting changes in international trade agreements and weaker real income growth over the next few years. The inflationary effects of the weaker value of the sterling could only be fully offset at the cost of higher unemployment and potentially weaker income growth as a result. The MPC must balance the trade-off between the speed with which it returns to its inflation target of 2 per cent and a monetary policy that supports jobs and economic activity. The MPC judged that it remained appropriate to return to target inflation over a somewhat longer period than usual and that the current monetary policy stance remained appropriate to achieve that.

Year-over-year CPI inflation was 1.6 per cent in December, an increase over previous months. Inflation is expected to rise to 2.8 per cent in the first half of 2018 before falling gradually to 2.4 per cent over the next three years.

Bank of England