The Monetary Policy Committee of the Bank of England observed that growth in the second half of the year would remain around 0.7 percent a quarter or higher -- a much more positive view than before -- while the recent appreciation of the sterling against the dollar could keep inflation under 2.5 percent over the next two years, minutes released on Wednesday of the Oct. 8-9 committee meeting, showed.
With unemployment remaining above the 7 percent threshold, the committee agreed on continuing its loose monetary policy, but without increasing the degree of monetary stimulus further, since “market rates had fallen back over the month and output appeared to be expanding at least as fast as expected.” The committee voted unanimously in favor of maintaining the Bank Rate at 0.5 percent and to maintain the stock of asset purchases financed by central bank reserves at 375 billion pounds ($606 billion).
The committee noted that unemployment would be lower, and output growth faster, in the second half of 2013, than previously expected. The committee also observed that the recent appreciation of the sterling against the dollar may have been partly due to the British economy performing better than its peers in the region, but cautioned that a stronger currency would support import growth and dampen export growth in the medium term.
The committee said recent economic data pointed to a continued rise in housing prices, which would increase the collateral available for households and small businesses in the mortgage market, helping boost demand and support economic activity.
Growth in the euro zone over the coming years is likely to be weighed down by the impact of “continuing adjustment in the periphery,” coupled with a crippled banking system, the committee noted. And, in the U.S., the federal government shutdown in October would hurt economic activity in the fourth quarter of 2013, and also take a toll on household and business confidence, the committee said. In Japan, the medium-term outlook would depend on the success of structural reforms, dubbed Abenomics, particularly in the labor market, the minutes showed.