Bank of England keeps interest rates on hold

Inflation expected to fall below 2% in January, according to the BoE

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The Bank of England held its monetary policy meeting on Thursday last week. As widely expected, the central bank left its interest rates unchanged at 0.75%.

The decision to leave interest rates steady was a unanimous decision. The central bank’s last rate hike came in August this year and the UK’s interest rates are at the highest level since the past nine years.

The unchanged interest rate comes amid the Brexit uncertainty and the fast-approaching deadline of March 29, 2019.

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In its monetary policy, the Bank of England cautioned that the Brexit uncertainty had significantly increased posing risks to the economic outlook.

BoE officials expect that inflation would fall below 2% in the coming months due to lower fuel prices. The BoE forecast that consumer prices could fall to 1.75% in January.

Growth prospects were also lowered by the central bank and it expects the fourth quarter GDP to average around 0.2% from 0.3% previously.

The central bank’s monetary policy meeting came just a day after the UK’s inflation data was released.

Consumer prices in the United Kingdom slowed in the month of November to the lowest level in nearly a year and a half. The decline in inflation was in line with the median estimates.

Consumer prices rose 2.3% on an annualized basis in November. This followed October’s 2.4% increase, data from the Office for National Statistics showed last week. The weaker pace of inflation came amid a decline in fuel prices.

The latest inflation report was the lowest level since March 2017 when consumer prices were recorded at the same level. On a month over month basis, headline inflation rose 0.2% in November which was also in line with the median estimates.

Core inflation, which strips out the volatile food and energy prices including alcoholic beverages also slowed from 1.9% in October to 1.8% in November. The core CPI was in line with the median estimates.

Inflation based on the housing costs, however, held steady at 2.2% during the reported month.

Mike Hardie, head of inflation data at ONS said, “Inflation was little changed as falling petrol prices, thanks to a substantial drop in the cost of crude oil, were offset by rises in tobacco prices following the duty changes announced in the Budget.”

Other data from the ONS showed that input price inflation halved to 5.6% during the month of November, following 10.3% that was registered in October. Meanwhile, output price inflation fell to 3.1% from 3.3% previously. Economists forecast that output price inflation would fall to 3.0% while input price inflation would fall to 4.9%.

Inflation, when taking into account the housing prices eased to 2.7% on an annualized basis in September. This was down from 3.0% previously. The increase was the smallest increase since July 2013.

Housing prices in London fell 1.7% on the year to October, down from 1.8% from the month before.

In a separate report, the UK’s monthly retail sales data surprised to the upside. Economists forecast that retail sales would rise 0.3% on the month in November. However, data showed that UK consumers pushed retail sales 1.3% higher on the month.

The jump in retail sales came mostly on account of Black Friday sales and promotions, the UK’s Office for National Statistics said. On a year over year basis, UK’s retail sales increased 3.6% in November including automotive fuels. This followed October’s gain of 2.4%.

The jump in retail sales for November was the biggest since July this year when retail sales surged 3.9% on the year.

Excluding automotive fuels, retail sales increased by 1.2% in November following a 0.2% decline previously.

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