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Barbara Ruszel Economist
Tel: 902-424-1848Email: Basia.Ruszel-Lichodzijewska@novascotia.ca

August 03, 2017
MONETARY POLICY: UK

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 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 MPC noted that GDP growth is sluggish as weaker household real income is weighing on consumption. Growth is expected to be slightly above a reduced potential rate over the forecast period. Net trade expected to be lifted by strong global growth and past depreciation of sterling. UK firms should begin greater investment due to high profitability (export sector), low capital costs, and limited spare capacity; however, these factor needs to offset Brexit uncertainties.

CPI inflation in the United Kingdom was 2.6 per cent in June in line with expectations. Inflation is projected to rise further in coming months and peak around 3 per cent in October as past depreciation of sterling continues to pass through to consumer prices. Inflation is forecasted to move back towards the 2 per cent target during 2018 but remain at slightly above the target.

 

Bank of England



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