U.K. inflation may remain below 0.5% in H1 2016

The MPC left the bank rate unchanged at 0.50% and stocks of purchased assets at GBP375bn keeping the global economic outlook in mind. The lone member voted in favour of rate hike was Ian McCafferty.

The real economy outlook of the United Kingdom is well. Growth rate of the economy is above trend, employment is increasing and the unemployment rate is almost under control. In contrast, firm GBP and lower oil prices are keeping the inflation low, and it is expected to continue further. Since the oil prices are highly volatile, the inflation rate cannot be predicted. Therefore, holding bank rate unchanged by the BoE is a wise decision.

"We have updated our inflation forecasts and now expect inflation to stay below 0.5% in H1 16 before moving up in H2 16. In our main scenario: CPI inflation will reach 2% towards year-end 2017 while core inflation will actually increase to above 2% at the end of our forecast horizon", says Nordea Bank.