MPC Meeting, January 2012: Key Points

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The Bank of England's Monetary Policy Committee voted unanimously to maintain the base rate at 0.5% and continue with the asset purchase programme up to a value of £275bn.

Some members felt that the risk of inflation falling below target meant that further asset purchases were likely to be required in the future.

Financial markets

  • More positive news from US may have supported markets, but this will have been countered by continuing problems in the euro area
  • Short term interest rates little changed in the UK, but fell in the euro area, reflecting the ECB's policy rate reduction in December
  • Equity markets improved on the news of the ECB's rate reduction

International economy

  • Euro area growth was weak, at 0.1%, in the third quarter of 2011, with core countries showing weakness too
  • US starting to look more positive with fourth quarter growth likely to be around 0.8%
  • Emerging world activity slowing, but no sign of a sharp fall
  • Commodity prices rose slightly over the month

Money, credit, demand and output

  • ONS estimates showed GDP grew 0.6% in the third quarter, but fourth quarter likely to have been weak, with some data implying contraction (ONS's first estimate for the fourth quarter was out today and showed a contraction of 0.2%)
  • Recent surveys suggest a modest pick up in December that could continue into the year ahead
  • Latest indicators of consumer spending growth were mixed, but confidence still depressed
  • Goods exports grew sharply in October, and did not fall back as much as expected in November
  • The way firms responded to the sustained period of weak domestic demand would affect how quickly the economy recovered. The Bank noted some signs of a weakening in investment intentions.

Supply, costs and prices

Overall, the broad outlook for inflation was seen as similar to that presented in November's inflation report, though speed and extent of the fall in inflation was less certain.

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