The Bank of England's Monetary Policy Committee (MPC) voted to maintain the Bank Rate at 0.75 per cent. The MPC also voted to maintain the stock of UK non-financial corporate bonds stock at £10 billion and the stock of UK government bond purchases at £435 billion. The MPC noted that near-term data have been broadly in line with their May Report, but downside risks to growth have increased. According to the MPC, increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and have led to a decline in the sterling exchange rate. Recent UK data have been volatile, in large part due to the effect of Brexit uncertainty on financial markets and businesses.

After growing by 0.5 per cent in 2019 Q1, the MPC expects little change in GDP for Q2. This reflects in part an “unwind of the positive contribution to GDP in the first quarter from companies in the United Kingdom and the European Union building stocks significantly ahead of recent Brexit deadlines”. The MPC’s recent economic projections assumed a smooth adjustment to the average of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union, and were conditioned on a gradual raising bank rate to 1.00 per cent by end of 2021. The MPC has projected GDP growth to be slightly below potential in 2019, reflecting subdued global growth and ongoing Brexit uncertainties. Growth is expected to increase after 2019, with excess demand rising to 1 per cent above potential output and CPI inflation above the 2 per cent target in two years’ time.

CPI inflation was 2.0 per cent in May and is expected to fall below the 2 per cent target later this year, given recent declines in energy prices. The MPC notes that the labour market remains tight, with recent data on employment, unemployment and regular pay in line with recent expectations.

Bank of England