BoE Policy Unchanged

German gross domestic product grew to 1.70% in 2015 compared to 2014’s 1.60% according to the Federal Statistical Office. The boost from domestic consumption has helped the country to grow at a time when the export economy is struggling, recording the best performance since 2011. Household spending rose 1.90% over the year compared with 2014’s 0.90% gain whereas government consumption also rose from last year’s 1.70% to 2.80%. Imports outstripped exports in the latest reading, printing at 5.70% and 5.40% respectively. Industrial production, excluding construction, accounts for more than 25% of total GDP, advancing by 2.20% in 2015 whereas construction itself reported a 0.20% rise. Employment was up by 0.80%, helping to increase domestic spending with record low unemployment and steadily rising wages aided by cheaper energy prices and record low interest rates implemented by European Central Bank.

The Bank of England left interest rate policy unchanged at a record low 0.50% with Monetary Policy Committee members unmoved in their position on current policies, with an 8-1 vote for maintaining rates. The one dissenting vote is Ian McCafferty who has keep his views intact and remains firmly in the hawkish camp, calling for higher rates immediately. The main drivers of the latest decision were growing concerns about the pace of growth and inflation.  With inflation on the cusp of deflation and growth slowing modestly in the last quarterly reading, policymakers are unsure when conditions will ease for the economy.  The prevailing hope is that inflation will gradually start to rise after energy prices bottom out, paving the way for policy tightening. Economists now predict interest rates will be adjusted higher closer to the end of 2016 or near the beginning of 2017.