MPC Minutes

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MPC members voted to hold the bank rate steady at 0.5% and to finance a further £50 billion of asset purchases that will take place over the next four months. This decision brings the total quantity of quantitative easing to £375 billion.

All nine members of the MPC voted to maintain the bank rate at 0.5%. Seven members voted in favour of increasing the stock of asset purchases, with Spencer Dale and Ben Broadbent preferring to maintain the stock of asset purchases at £325 billion.

The fall in inflation to 2.4% announced yesterday was not unexpected by the MPC given reductions in oil and energy prices and the impact of the delay to fuel duty changes.

The Committee noted higher risks from weakening in global demand, outlook for GDP growth and export prospects. While the reaction to the European council meeting has been generally positive and has led to improved market sentiment in Europe, there are increasing signs that the threat of disorderly resolution to the financial tensions in the euro area is affecting UK growth. The majority view was that upside risks to inflation had declined and the potential cost of greater stimulus was lower than the cost of providing too little.

Economic developments over the month:

Financial markets

  • The prevailing sentiment in financial markets remains one of caution and risk aversion.
  • Some improvement in bank funding markets in continental Europe towards the end of the month.

The international economy

  • Recent indicators continue to suggest a weak near-term outlook for global activity.
  • Composite Euro area PMI rose fractionally in June but remained consistent with contraction in the second quarter.
  • Forward looking service sector business expectations suggest weak third quarter.
  • US manufacturing ISM index for June fell sharply indicating flat or declining output in the sector and the new orders index also contracted suggesting weakness could persist.
  • Overall picture for emerging economies one of gradual reduction in the pace of growth.
  • Oil prices continued to decline for most of the month before picking up a little towards the end of June and early July.

Money, credit, demand and output

  • GDP estimate unchanged but contribution to growth from trade, business investment and consumer spending were revised down and offset by an increase in government spending.
  • Business survey indicators of activity have been weak.
  • The announcement of the Funding for Lending Scheme and the Banks activation of its ECTR facility are expected to provide a potentially significant stimulus to economic activity.

Supply, costs and prices

  • CPI had fallen to 2.8% in May (though has since fallen further to 2.4% in June)
  • CPI likely to be lower than expected in the near-term given low oil and energy prices and postponement of the fuel duty changes.
  • Private sector productivity had continued to fall despite a three month on three month rise in employment of 166,000 in April.

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