BOE Says Economy Strengthening as Inflation Remains Subdued

Bank of England policy makers said the U.K. recovery is strengthening and inflation (UKRPCJYR) pressures remain subdued as they provided an upbeat assessment of the economy.

“The domestic economy was building momentum with some signs of modest rebalancing toward investment,” the BOE said in the minutes of the Monetary Policy Committee’s April 9 meeting. Recent surveys point to growth of close to 1 percent in both the first and second quarters of the year, it said.

The minutes, published in London today, showed BOE officials voted unanimously to keep the key rate unchanged at 0.5 percent this month and to maintain the stock of purchased assets at 375 billion pounds ($630 billion). At the time of the meeting, unemployment remained above the 7 percent threshold set by the BOE as part of its forward guidance.

While the economy is strengthening, BOE Governor Mark Carney has said there is scope to wait for more spare capacity to be absorbed before raising the key rate from a record-low. Inflation remains below the BOE’s 2 percent target and the MPC said in the minutes that “near-term inflationary pressure appeared to have eased further” in the past month.

Price pressures are partly being kept in check by the strength of the pound. Britain’s currency reached the highest level since November 2009 this month as an improving economic outlook bolstered demand for U.K. assets.

Sterling was little changed at $1.6817 at 9:34 a.m. London time.

Income Growth

Policy makers also said the recent surge in employment may provide “the foundation for more sustained real income growth.”

“It was possible that a sustainable rise in real wages and incomes, consistent with a durable recovery in demand and output, was in prospect,” the minutes said.

The MPC noted risks to the recovery including the “recent widening” of the current account deficit. It also said that while advanced economies were strengthening, emerging market growth was weakening.

Data released since this meeting has voided the first phase of guidance, introduced by Carney in August to suppress expectations that the central bank would rush to increase its key interest rate from a record-low.

Britain’s unemployment rate dropped to 6.9 percent in February, raising the prospect of a debate about whether to raise rates. Officials will now focus on the amount of slack in the economy as they try to judge when to increase borrowing costs.

“There was considerable uncertainty about the amount of slack remaining within the economy, and committee members had a range of opinions on this and the outlook for inflation in the medium term,” today’s minutes said.

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Emma Charlton

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