July MPC meeting minutes

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At their meeting in early July, the MPC welcomed Mark Carney. A summary of the key issues considered at their meeting is outlined below.

Financial markets

  • Volatility in financial markets has increased sharply in response to comments by US monetary policymakers.
  • UK rates, both short-term and long-term, have risen surprisingly. This prompted the MPC giving some soft forward guidance on the timing of changes to policy rates.

The international economy

  • US economy is looking slightly weaker in q1; GDP growth was revised down and household spending is looking less resilient. However the recovery still looks to be in place for the medium-term with consumer confidence, the job market and housing markets looking on the up.
  • Euro-area activity seems to have stabilised with consumer confidence picking up but unemployment and political developments in some countries add uncertainty to the picture.
  • Recent data from emerging markets looks largely disappointing with medium-term supply capacity potentially weakening. Oil prices have risen slightly as a result of political tensions in the Mid-East.

Money, credit, demand and output

  • The new method of calculating investment spending means business investment is actually 20% lower than previously estimated.
  • Improvement in other activity indicators has led to the bank upping its forecast of GDP growth in q2 by 0.1% despite wide-ranging uncertainty.
  • The second half of 2013 is expected to continue to pick up with much growth coming from the household sector.

Supply, costs and prices

  • The inflation forecast remains similar to last month despite CPI inflation rising to 2.7% in May from 2.4% in April. CPI is expected to reach and remain around 3% in June through to Autumn.
  • Measures of pay show some growth which will give strength to the household sector but the rate of growth has slowed since mid-2012.
  • Productivity remains weak and profit margins are lower than normal.

The policy decision

Overall, signs in the domestic economy are largely positive with activity picking up and some reduction in uncertainty. Looking beyond domestic markets shows more of a mixed picture with weaker data from the US and emerging markets but some positive shifts in the euro-area. Interest rates have risen somewhat but MPC members did not consider these rises to be warranted by movements in the domestic economy.

Voting:

  • The MPC members voted unanimously on both the bank rate and the stock of asset purchases.
  • Both were kept at their current levels.

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