UK inflation target backed by Bank of England

Image copyright Getty Images Image caption Carney was also re-elected for a second term in April Bank of England policymakers are set to stick with the central bank’s inflation target for another year as…

UK inflation target backed by Bank of England

Image copyright Getty Images Image caption Carney was also re-elected for a second term in April

Bank of England policymakers are set to stick with the central bank’s inflation target for another year as they hold off on any major rate rises.

After a policy meeting on Thursday, the Bank’s Monetary Policy Committee will also keep interest rates on hold and will discuss the economic impact of tariffs on steel and aluminium.

Governor Mark Carney said in the minutes of the meeting that “there was widespread consensus among members that the MPC should continue to retain its inflation-targeting mandate”.

The Bank is the only major central bank that sets itself its own inflation target.

“My view is that it makes sense for the Bank of England to stick with that,” John Wraith, a senior fixed income analyst at UBS Wealth Management told Reuters.

But Allan Monks, a former BoE official, said that under Mr Carney the Bank had “consistently shifted policy towards the opposite end of the path, but with the threat of rate rises.”

Stronger jobs

In the minutes from the meeting, the Bank stressed the strength of the UK labour market, which has been one of the main factors underpinning the recent strength of the economy.

It said the UK’s employment rate had increased to 72.7% – “the highest level on record” – and there had been “a strong increase in the proportion of workers engaged in part-time employment because they could not find full-time work.”

Labour market data suggested a “globally synchronised pick-up”, with jobs growth in the UK and several other big European economies exceeding all previous estimates for the first three months of the year.

The Bank said this was partly due to continued strong growth in investment and exports.

The evidence on the economy’s performance since it last raised interest rates in November, when rates stood at 0.5%, was “broadly consistent with the forecasts made in February”, the minutes read.

It is expected to leave rates on hold at 0.5% until at least the autumn of 2019, according to most recent economist predictions.

The Bank will also discuss the long-term impact of tariffs on the UK economy.

It will lay out details of the “scope for monetary policy adjustments to mitigate the impact on growth” but will not be guided in its decisions on monetary policy by the outcome.

No rate rise this month

The outcome of its meeting will give little in the way of clues about next month’s meeting, when the Bank is expected to announce another rise in interest rates.

Since August, the Bank has been charging banks 0.75% to back their sterling mortgages, to encourage more lending. This is also aimed at reducing loan-to-income ratios.

Investors and economists have said it was too soon to expect another increase after warnings from officials that the Bank needs to look at inflationary pressures on the High Street and the shortage of housing.

Signs of inflation and weak wage growth were already being seen when Mr Carney said in April that interest rates would need to rise “sooner rather than later.”

Since then, a number of economists have said that the Bank may delay any tightening until at least October, after the high stakes Brexit talks begin and the economy has time to digest the news.

Some believe that is also when mortgage rates will start to rise after four years of steady reductions.

“The economic data on the British economy recently has all come in better than expected, so I think the Bank of England will go on hold,” Stephen Lewis, chief economist at Monument Securities, told Reuters.

“They don’t want to actually raise rates while the political atmosphere is dominated by the nature of Brexit.”

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