Twelve-month CPI inflation increased to 0.5% in March but "remains well below the 2% inflation target", according to the Committee. The shortfall has been attributed to unusually large drags from energy and food prices, which are expected to fade over the next year.
The MPC judged that it is more likely than not that Bank Rate will increase over the targert period. However, referendum effects are likely to make financial market indicators harder to interpret over the next few months, and the Committee said it is likely to react more cautiously to data news over this period than would normally be the case.
The MPC said that it has begun to see signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity, including on capital expenditure and commercial property transactions, which are being postponed pending the outcome of the vote. The Committee expects this to lead to some softening in growth during the first half of 2016.
However domestically, growth has been steady, and the MPC continues to expect CPI inflation to rise over the next year. The pickup in the price of oil and sterling’s recent depreciation is expected to support that rise.
Matt Andrews, Managing Director at Bluestone Mortgages, commented:
“A decision to hold Bank Base Rate for yet another month comes as no surprise. For many borrowers across the UK this continued low-rate environment could provide a good opportunity to secure favourable loan rates now, whilst they are still available.
“For the market to truly return to full health, more flexible lending options need to be available to hard working people across the UK who have experienced genuine hiccups and deserve lenders that listen and treat each case with a tailored, individual approach.”
Nick Dixon, Investment Director at Aegon UK, added:
“Given sluggish wage growth, there’s no immediate pressure for the MPC to take action. However, we may be on the cusp of an inflection point where inflation becomes a greater a concern. This could be triggered by strengthening commodity prices, potential declines in sterling, reinforced by the possibility of Brexit. In combination these inflationary drivers could lead to interest rates rising at a quicker pace than the yield curve implies.”
