Remember, Remember, The Fifth of November

Market Trends - 05/11/2015

The United Kingdom saw monetary policy remain unchanged for the 6th consecutive year amid speculation that external conditions would impact the outlook. The Monetary Policy Committee voted 8 to 1 to keep interest rates on hold at 0.50% while leaving quantitative easing at £375 billion. The MPC’s decision was based on a number of macroeconomic factors including continued weakening of the global economy according to a quarterly collection of forecasts. This effect is caused by a slowdown from the world’s second largest economy, China, with commodities continuing the price drag. Even though there might be a slight advancement in the Euro area, the UK would like to stay modest in its growth. The domestic economy is moderately strong with real income growing and anticipated to experience further increases during the second half of next year, keeping consumers’ confidence at high levels. The MPC has stated that domestic demand will still be supported by a strong Pound and cheaper energy.

According to the inflation report, price growth is missing its estimates for the fiscal year, with the BoE slashing estimates for the final quarter of 2017 to 2.10% and raising it for the following year to 2.20%. Consumer Price Index inflation is likely to remain below 1.00% until the second half of 2016 with GDP growth for the fiscal year lowered to 2.70%. In the successive year, GDP expectations were also lowered to 2.50% whereas for 2017 the value was escalated to 2.70%. The objective of this is to gradually usher the initial inflation rate to 2.00% over the coming next two years, thus indicating a probable rate increase early in 2016. For the time being the Federal Reserve has expressed a raise of rates in December. This is in contrast with the accommodative policies from the European Central Bank and the Peoples Bank of China currently being pursued. The unbalanced decisions by the global leaders might have had an impact on today’s decision, but the BoE continues to stress that when rates begin to rise, it will be done at a limited and gradual pace.


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