- Bank of England left monetary policy unchanged in March, as expected .
- That means a base interest rate of 0.5%.
- The central bank, however, made clear it is ready to raise interest rates at its next meeting in May.
LONDON – The Bank of England left monetary policy unchanged on Thursday, but made clear it is ready to raise interest rates at its next meeting in May.
The Monetary Policy Committee voted to leave rates on hold, but the minutes of its meeting made clear that a second hike in six months is likely on its way. Seven members of the committee voted to leave rates unchanged, while Ian McCafferty and Michael Saunders, widely known as the bank’s most hawkish policymakers, backed a hike.
The bank increased its base interest rate from 0.25% to 0.5% in November last year, having previously failed to raise rates in more than a decade as a response to the financial crisis.
The bank’s announcement was largely in line with market forecasts, although most BoE watchers expected a unanimous decision from the MPC to leave policy alone.
“As in February, the best collective judgement of the MPC remains that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon,” the Bank of England said in a statement.
After hiking rates for the first time since the financial crisis last November, the bank spent much of the rest of the year signalling that it will likely raise rates further in 2018. The market previously expected those hikes to come towards the end of the year, but after a more hawkish than expected meeting in February, expectations are now that the next hike will come at the bank’s next meeting in May.
“The May forecast round would enable the Committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures,” it added in the minutes of the MPC meeting.
The basic reason behind the bank’s move towards rate hikes is that the UK’s economy has performed better than expected in recent months. Data this week revealed falling inflation, rising retail sales, and near record low unemployment in Britain. The strength of the global economy is also a key factor in the bank’s more hawkish attitude towards policy.
The pound briefly spiked higher against the dollar after the announcement, but has calmed down around five minutes afterwards, trading up by around 0.3%, as the chart below shows: