Monetary Policy Report - January 2020

Our quarterly Monetary Policy Report sets out the economic analysis and inflation projections that the Monetary Policy Committee uses to make its interest rate decisions.

In a nutshell

The interest rate decision

We set to influence spending in the economy and to ensure (the pace of price rises) returns to our 2% target sustainably.

Low, stable and predictable inflation supports jobs and growth.

Over the past decade, our economy has needed interest rates to stay very low.

In 2019, the UK economy slowed because firms’ uncertainties about Brexit reduced their spending, and growth in the world economy slowed. UK inflation fell back below our 2% target.

The latest data suggest that the uncertainty facing businesses has fallen, and that global growth has stabilised. We expect uncertainty to fall further and global growth to pick up. If that happens, it should help to support growth here in the UK.

If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2% target sustainably.

If the economy develops as we expect, then upward pressure on prices should build gradually over the next few years. In that case, we think a modest increase in interest rates may be needed to keep inflation at our 2% target.

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Growth has slowed in the UK

Growth in the UK economy slowed last year.

Uncertainty about the outcome of Brexit helps explain why UK growth has slowed.

We think it is the main reason why by UK companies has been weak. Uncertainty encourages businesses to delay spending on things like new machinery.

Lower growth in other countries also helps explain why UK growth slowed in 2019.

It reduced the demand for the goods and services that the UK sells abroad.

Inflation dial

Growth has slowed in the UK

  • Average quarterly GDP growth (%)
  • Business investment growth (% yearly change)

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Inflation is below our 2% target

Inflation is currently below our 2% target.

Inflation has fallen over the past year largely because of lower oil and gas prices. That has reduced and petrol prices.

Slower growth in the UK economy has also probably reduced inflation.

When people are not spending as much, firms tend to increase their prices by less.

Dial

Inflation is below our 2% target

  • Inflation (% change)

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There are early signs that growth is picking up

As the outcome of Brexit becomes clearer, companies and households are likely to become less uncertain about the future.

The latest surveys of UK businesses taken after the general election suggest uncertainty has fallen.

The latest data also suggest that global growth stopped slowing.

Lower uncertainty and a gradual recovery in growth in other countries should help UK growth pick up.

We expect inflation to stay below 2% this year.

After that, we expect upward pressure on prices to build as the UK economy grows more quickly.

Growth dial

There are early signs that growth is picking up

  • Inflation (% change)

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If that doesn't happen, interest rates could fall

If growth stays weak, then we may need to lower interest rates to support the UK economy and ensure that we return inflation to our 2% target sustainably.

If the UK economy recovers and upward pressure on prices builds, we think a modest rise in interest rates may be needed to keep inflation at our 2% target.

Percentage sign

If growth stays weak, interest rates could fall.

Press conference

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