Bank of England finds its hands tied for next meeting

3rd November 2015 By: Ranko Berich

BoE Monetary Policy Summary – 05/11/15

Thursday’s Bank of England meeting is an opportunity for the MPC to take stock of a slowing economy, which is still showing few signs of inflation.

GDP growth was a reasonable 0.5% in the third quarter, but this won’t be enough to inspire confidence in the strength of the economy. The Bank has discussed situations like this in recent meetings. Although the economy is growing and wages are rising, increases in productivity are keeping unit labour costs and inflation subdued. By extension, rates must stay low.

Fiscal policy will be the elephant in the room at the MPC meeting. George Osborne has made it abundantly clear that the government’s purse strings will remain firmly drawn, meaning monetary policy has little room to rise up from the zero lower bound.

This leaves the Bank of England with its hands tied. Alongside the uncertain international outlook the UK economy is facing slowing growth, tight fiscal policy and no inflation in sight, making interest rate moves a non-starter. Barring a change in these factors, this will remain the outlook for quite some time.