MPC minutes - the key points

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The decision

The Monetary Policy Committee voted to maintain the Bank Rate at 0.5%. The Committee also voted to maintain the stock of asset purchases at £375bn.

In both cases, the vote was unanimous.

The MPC judged that a sustained recovery was materialising in the UK and that momentum had picked up since the time of the August inflation report. There had been strong broad-based growth in the third quarter, accompanied by continued positive signs from business confidence surveys.

Nonetheless, the UK remained vulnerable to a range of external risks, with disorderly adjustment in the euro area and in some emerging economies of particular note.

With regards to inflation, the committee felt that the scope for economic activity to increase without putting undue upward pressure on inflation would depend on the extent to which the unprecedented weakness in labour productivity seen over recent years would unwind as demand recovered. The MPC's best collective judgement remained that productivity was likely to increase over the forecast period as the economy recovered, albeit by less than demand, such that slack in the economy was eroded only gradually.

The fall in CPI in October was welcome, and price pressures were expected to remain contained, as lower oil prices, a stronger pound and domestic spare capacity came into play. However, some measures of inflation expectations had ticked higher, probably as a result of announcements over utility bills.

Nonetheless, the MPC agreed that neither of the price stability knockout conditions that would override the forward guidance provided in August had been breached.The FPC had continued to judge that the financial stability knockout had not been breached. As unemployment remained above the 7% threshold, the Committee's policy guidance therefore remained in place.

Here is the data the committee looked at in a little more depth:

Financial Markets

  • Risk appetite had increased as short term uncertainties – such as the US government shutdown – had receded.
  • The expected path of short-term interest rates in the United Kingdom was similar to that at the time of the Committee's previous meeting.
  • The first rise in Bank Rate was fully priced in by the middle of 2015, as had been the case last month.
  • Markets expect US tapering to be pushed back following disappointing labour market data
  • Expectations of a loosening in monetary or liquidity policy by the ECB had increased in recent weeks, following weak data on euro-area inflation.
  • Equity prices had risen internationally, with Euro area equity prices having risen by more than their UK or US counterparts
  • The sterling effective exchange rate was around 3% stronger than at the time of the August Inflation Report.

The international economy

  • Risks were more balanced than a year ago, but concerns remained, particularly in relation to the Eurozone
  • Industrial production rose in the Eurozone in Q3 and it was likely growth had been stronger than previously anticipated
  • Although there are improving signs in Europe, growth will depend on how much of a drag the adjustment in the public, banking and non-bank private sectors would prove to be, particularly in the periphery.
  • The Euro area looked likely to experience persistent low inflation
  • US data had been disappointing, but nonetheless continued growth looked likely
  • US growth is expected to pick up in 2014 as the impact of fiscal tightening lessened
  • Chinese growth had come in stronger than expected, though the medium term outlook will depend on the ability of the authorities to drive through measures to liberalise and rebalance the economy.
  • Some emerging economies, particularly those with large current account deficits, remained vulnerable to a sharp reversal in capital inflows.

The UK: Money, credit, demand and output

  • Business confidence surveys pointed to continued momentum
  • Growth in Q3 had been broadly based and the Bank's analysis points to growth of 0.9% in Q4.
  • Data on exports had disappointed
  • Consumer confidence had continued to improve in recent months and housing market transactions were on the up
  • The most recent data for business investment showed that it fell in Q2, however, the MPC felt that the underlying conditions for business investment appeared to have improved.

The UK: Supply, costs and prices

  • CPI was lower than expected in October, and expected to remain lower as a result of weaker oil prices; however, increases in utility bills would feed into inflation by the end of the year
  • Households' and companies' inflation expectations remained close to previous averages following the introduction of forward guidance
  • There had been little sign of higher inflation expectations feeding into larger wage increases.
  • The ILO unemployment rate had fallen to 7.7% and claimant count had also fallen

November 2013 Growth and inflation projections

  • Four-quarter GDP growth was expected to pick up as uncertainty lessens and credit conditions improve
  • The MPC expect output to remain below its pre-recession peak until next spring
  • The MPC still viewed the balance of the risks to be on the downside, reflecting continuing challenges in the Euro area
  • Unemployment was expected to fall slowly in line with modest growth in demand and productivity, though its fall was expected to be a little faster than in it was three months ago
  • The Committee's latest projections, assuming Bank Rate rose in line with the market curve, implied around a two-in-five chance that the unemployment rate would have reached the 7% policy threshold by the end of 2014.
  • CPI inflation was projected to fall a little further in the near term, and remain around, or a little below, the 2% target thereafter.

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