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 noted that aggregated demand slowed in Q1 and is expected to remain around current rates. The slowdown appears to be concentrated in consumer sectors, reflecting sterling's past deprecation on household income and spending. Consumption growth is anticipated to be slower in the near term. The outlook for global activity continues to improve and business investment growth is expected to be higher than previous projections with a depreciated currency providing an incentive for exports to increase capacity.

CPI inflation has risen above the 2 per cent inflation target as the depreciation of sterling has led to higher consumer prices but this has been partially offset with weaker than expected wage growth. The MPC expects inflation to rise close to 3 per cent by the end of the year. The MPC notes that "monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years". The MPC is balancing the speed at which to return inflation to target and support that monetary policy provides to jobs and economic activity through most of the forecast period. The economy will be operating with both spare capacity and inflation above the 2 per cent target but is expected to close the output gap if the adjustment to the UK's new relationship with the European Union is smooth. The Committee noted that there are limits to the extent above-target inflation can be tolerated and that monetary policy can respond in either direction to changes to the economic outlook.

Bank of England