Bank of England: disorderly Brexit risk reduced by European Union talks progress

Pound Exchange Rate Rallies on UK Wage Growth Sterling to Norwegian Krone Up +0.50

Domestic data suggested the economy might be slowing slightly into the end of the year, and Brexit remained a big uncertainty, the central bank said.

Investors were looking ahead to the BoE announcement later Thursday, with no change expected after a rate hike last month.

"We think that the BoE will be happy to tread carefully on monetary policy and we maintain our call for the Bank Rate to remain unchanged at 0.50 percent next year".

That rise above 3% means Bank of England governor Mark Carney has to write to the government and explain why inflation is so far above the target of 2%.

- The accompanying statement was seen as dovish as the bank said any future increases in interest rates are likely to be gradual and modest.

Inflation hit its highest level in almost six years in November at 3.1 percent, and the jobless rate remains at the lowest since 1975, even though the outlook for growth is soft.

Economist Howard Archer stated: "UK labour market showing signs of faltering after resilience during much of 2017".

The November move was created to combat rising inflation. The MPC judges that inflation is likely to be close to its peak, and will decline towards the 2% target in the medium term.

The bank made clear that Brexit remains the most important influence on the British economy right now, saying that: "Developments regarding the United Kingdom's withdrawal from the European Union - and in particular the reaction of households, businesses and asset prices to them - remain the most significant influence on, and source of uncertainty about, the economic outlook".

The decision comes as British Prime Minister heads to Brussels for a summit of European Union leaders where she hopes to win approval for the Brexit talks to move onto trade matters following an agreement last week on citizens' rights, the Irish border and Britain's divorce payment.

"With the MPC having moved to eight meetings per year, the next policy meeting will be in February".

Workers' average earnings are meanwhile failing to keep pace with the overall inflation rate, eroding their purchasing power.

"In such exceptional circumstances, the MPC's remit specifies that the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity", the rate-setting panel said, according to the minutes.

The BOE voted unanimously to leave its benchmark rate unchanged, as forecast by all economists in a Bloomberg survey, and repeated a line that any rate increases will be limited and gradual.

That view was maintained in December, with the MPC saying that it "remains of the view that, were the economy to follow the path expected in the November Inflation Report, further modest increases in Bank Rate would be warranted over the next few years, in order to return inflation sustainably to the target".



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