Unanimous MPC vote to keep Bank rate at 0.5%

Pound sterling

GETTYInflation hit a near-six year high of 3.1 per cent in November

- The Pound eased back gently after the Bank of England left all its monetary policy settings unchanged, as expected.

The "very gradual" pace of tightening signalled by the BoE last month reflects both uncertainty about the economic impact of ongoing talks to leave the European Union, as well as weak underlying inflation pressures that belie a headline rate at its highest in almost six years.

BoE policymakers voted unanimously to keep rates at 0.5 percent as expected, a month after raising them for the first time in more than a decade.

Last week's agreement between the United Kingdom and the European Union would "reduce the likelihood of a disorderly exit, and was likely to support household and corporate confidence", the MPC said.

Last week's judgement by the European Commission that Britain had made sufficient progress in Brexit talks to move on to negotiations over trade and an interim deal to cover the period until 2021 should reinforce the BoE's assumption that the Brexit process will be smooth.

"After hiking rates last month and clearly communicating an "on-hold" policy stance, there's very little need for the MPC to say much at all at this meeting (see our preview)". The BoE said this marked the start of a very gradual tightening cycle as the economy comes close to running at full capacity.

Inflation may have hit a near six-year high, it's clear that now is not the time for a further rate rise.

Last month the BoE said it expected the economy to grow by 1.6 percent next year, unchanged from what it expects for 2017 and somewhat faster than the government and most economists polled by Reuters expect. The Committee will closely monitor the evolving economic scene, including the impact of November's Bank Rate increase, and be ready to respond to developments as they unfold to ensure a sustainable return of inflation to the target.

"Today we're gearing up for some potential significant shifts in the currency market as both the Bank of England and European Central Banks are set to deliver their last interest rate decisions of 2017".

Since the BoE's November rate rise, markets have bet on a further two interest rate hikes before the end of 2020, although there is considerable divergence among economists and strategists over whether this puts expectations too high or low.

Growth has slowed this year as firms have frozen investment due to Brexit-related uncertainty and inflation, stemming from the slump in the pound after the Brexit vote, has eaten into workers' real wages.

With the jobless rate at a 42-year low of 4.3 percent and the number of people working near an all-time high, slack in the economy has been largely eroded, which would be a prompt for a rate rise. It expects inflation to fall slowly next year.

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