The Bank of England has forecast an acceleration in economic growth for the second quarter as the Monetary Policy Committee once again voted unanimously to hold base rate at 0.5 per cent.
At its meeting in early June, the Bank’s MPC chose to maintain record low interest rates and keep in place current quantitative easing programme.
Experts have previously noted that growth in the UK and the US disappointed in Q1 of 2015, but the MPC said it was confident that global growth would resume at a steady pace in Q2 and beyond.
The MPC said: “For some members, it now appeared that the boost to global, as well as UK, activity from the reduction in oil prices in the second half of 2014 had been less than anticipated – perhaps reflecting continued caution on the part of households and firms who might be inclined to save such windfalls, at east initially.
“For other members, the recent data were less concerning: the impact of higher real incomes on spending would to be felt only with a lag and was likely to build over time if oil prices remained significantly below their mid-2014 levels, as the relative abundance of oil inventories and supply suggested was likely.”
The MPC also warned of the risk of “spillovers” as other countries assess their own monetary policy and stated that while the most likely path for the base rate in future remains a gradual increase, the actual path remains uncertain.
“The Committee’s guidance on the likely pace and extent of interest rate rises was an expectation, not a promise,” the MPC said.
Bank of England governor Mark Carney told the House of Lords economic affairs committee in March that it would be “extremely foolish” to cut rates in a bid to tackle record low inflation.
Carney said: “The thing that would be extremely foolish would be to try to lean against this oil price fall today [and] try to provide extra stimulus to try to get inflation up at this point in time.
“The impact of that extra stimulus …would happen well after the oil price fall had moved through the economy and we would just add unnecessary volatility to inflation. That would be foolish.”