BoE expects slack in economy to be absorbed within a year
Bank of England policy makers said slack in the economy will probably be fully eroded within a year, signaling potential future inflation pressures that will require policy tightening. In the minutes of its May policy meeting, the Monetary Policy Committee said while there was uncertainty about estimates of spare capacity, the panel’s best collective view was that the level of slack was about 0.5 percent of GDP and “likely to be fully absorbed within a year.”
The comments echo the MPC’s view in the Inflation Report last week that the next likely policy move would be an increase in the benchmark interest rate, which has been at a record-low 0.5 percent for more than six years. With the inflation rate below zero, there is no immediate pressure on the BOE to start policy tightening now, and markets aren’t pricing in a hike until mid-2016.
The MPC voted 9-0 to keep the rate unchanged, though for two members the decision was “finely balanced.” “While there was a range of views over the most likely future path for bank rate, all members agreed that it was more likely than not that bank rate would rise over the three-year forecast period,” the BOE said in the minutes, published in London on Wednesday.
After the Minutes were released Sterling went higher and is currently being traded few points above 1.5520 area. Pair is likely to find support around 1.5450 level and resistance below 1.56 handle. Later today, in the US session, FOMC Meeting Minutes are scheduled for a release.
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