- Global growth has been slower in the past few months. Though this could be a result of supply chain disruption following the disaster in Japan, there were some signs that softer growth rates could be more sustained.
- Domestic demand had been weaker than the committee expected, though net trade had contributed more to growth than had been expected.
- It is not yet clear from the data whether recent weaknesses in the UK growth will prove temporary or more lasting.
- CPI remained at 4.5% in May but indications from energy companies that they would increase prices more quickly than was thought in the May Inflation Report mean that CPI might peak at a higher level than was previously forecast.
- Fall in crude oil prices reduced pressure on producers' input prices over the month.
- Measures of household inflation expectations have been mixed, but measures of expected inflation implied by financial markets had remained broadly stable in the last six months.
- There was little sign that higher CPI inflation has been feeding through to wage claims.
- Spare capacity remained in the service sector, though less so than one year ago. Capacity utilisation in manufacturing appears to have normalised.
The policy decision
- CPI remains well above target and is likely to rise in the near term, probably to above 5%
- Primary upside risks: expectations feeding through to wage and price-setting behaviour; further upward shocks to the price level.
- Primary downside risk: strength of demand insufficient to eliminate spare capacity, especially given recent weakening in domestic and global demand.
"The Committee judged that downside risks to the prospects for medium-term inflation had increased over the month...
Most members judged that it was appropriate to maintain the current stance of monetary policy ... the current weakness of demand growth was likely to persist for longer than previously thought. Moreover, the fiscal challenges in the euro-area periphery highlighted the potential for further adverse shocks to demand."
Seven members (including the newest member Ben Broadbent) voted to maintain rates; two voted to increase the rate by 0.25pp; and one voted to expand QE by £50bn.
The minutes can be viewed here.