Bank of England (BoE) kept interest rates at a record low level of 0.25% and remained the plans for buying government and corporate bonds unchanged, after unanimously vote of the representatives. Last month, central bankers have abandoned their plan for further reduction in interest rates and instead took a neutral position on monetary policy, after was emerged that the immediate negative effects of votes for Brexit on the UK economy are much weaker than assumed initial data.
The strong performance of the British pound over the last month suggests that inflation may accelerate above the target level more slowly than forecast shows the bank in November. The British pound has appreciated by over 6% on a trade-weighted basis since the BoE presented the latest forecasts on November 8.
“This shows much slower acceleration of inflation to the target in the medium term, although expected volatility on a monthly basis since the positions of market participants in future relations with the European Union Great Britain continue to evolve”, said the official statement of BoE.
On Wednesday, the US Federal Reserve raised its key interest rate by 0.25 percentage points to a target range of 0.50-0.75%, as expected, tightening policy for the second time in a decade.
According to some economists, BoE would take the same step if it was the uncertainty surrounding the negotiations out of the EU will probably start next year. The central bankers from BoE said there is not much news in the last month about the British economy. The world economy has been strengthened, but the same happens with the risks to her.
“The global outlook has become more fragile given the risks in China, the euro area and some emerging markets and the strengthening of political uncertainty”, said BoE in the statement.
British inflation accelerated to its fastest pace in more than two years this month, although its level of 1.2% is still below the target of the central bank. Average prices have risen under the influence of more expensive clothes and influence the vote in Brexit the prices of technology goods.
In October, inflation slowed to 0.9%, prompting Governor Mark Carney of the Bank of England to write a letter to Treasury Secretary Philip Hammond, published by the central bank on Thursday.
“The Commission on monetary policy remains committed, as always, take all necessary actions to ensure that inflation expectations remain firmly anchored and that inflation will return to its target sustainably and within a reasonable [time] horizon”, wrote Carney.
Hammond, in turn, said the government “fully” is committed to operational independence and inflation target of the central bank.
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