LONDON (Reuters) – The Bank of England kept interest rates steady on Thursday, saying signs that Britain’s economy had picked up since December’s election, and of a stabler global economy, meant more stimulus was not needed now.
Here are highlights of Governor Mark Carney’s press conference after the announcement.
WILL THE DECADE START WITH A BANG?
“Overall, UK activity has likely stagnated in the final quarter of 2019, meaning the economy was operating with a margin of excess supply. In parallel, the CPI inflation fell below the MPC’s 2% target, reaching 1.4% in the fourth quarter.
“So the question facing the MPC at this meeting was whether the new decade would start with a bang. Certainly, political developments have been significant, leading to the UK’s historic withdrawal from the European Union tomorrow.”
UK ECONOMIC DATA: SO FAR, GOOD ENOUGH
“To be clear, these are still early days. It is less of a case of so far, so good, than so far, good enough.
“It will be important for the hard data on activity to follow through on the recent pick-up in the surveys, and for domestic price inflation to strengthen.”
RISKS TO GLOBAL GROWTH: TRADE TENSIONS, CORONAVIRUS
“Evidence of a pick-up in growth is not yet widespread, and any one of the known risks, such as a renewal of trade tension, could reverse recent progress.
“The emerging threat from a new strain of coronavirus is a reminder of the need to be vigilant.”
UK: STRUCTURAL CHANGE AHEAD
“The UK is entering a decade of potentially profound structural change.
“New trading arrangements will be struck. A new immigration policy will introduced. Major initiatives are likely on infrastructure, regional development, and the transition to a lower carbon economy.
“The MPC will need to assess the implications of all these developments for the balance of supply and demand and set policy to deliver price stability in a way that helps smooth adjustment and supports jobs and growth for the good of all the people of the United Kingdom.”
UK LABOUR MARKET AND SPEED LIMIT OF ECONOMY
“As it is today, participation rate – the number of people in the labour force – is very high.
“Unemployment is so low – we think it can go a bit lower – but the proportion of the population that is working is so high, there’s just not much more of that to happen.
“So the culmination of those two things means that the speed limit of the economy is much lower than it was a few years ago.”
UK PRODUCTIVITY: DISAPPOINTING
“In terms of the rate of productivity growth I think it is fair to say that we and others have been persistently disappointed since the financial crisis.
“Since I have been here, for six and a half years, there has been no recovery in the rate of productivity … And we do have to recognise that in the period since the referendum was called business investment has been very weak – it has gone from the strongest in the G7 to the weakest in the G7.”
UK’S NEW TRADE DEAL WITH EU: ADJUSMENT COSTS
“Now it’s very clear the intention of the government is that we will move immediately by this time next year to a deep free trade arrangement with the European Union. There are some adjustment costs with that.”
STRUCTURAL CHANGES NEEDED TO BOOST UK GROWTH
“Potentially large structural changes need to be made in order to get that rate of growth of supply up.”
SMALL AND MEDIUM FIRMS IN UK UNDER-SERVED
“We do think that small and medium size enterprises remain under-served by the financial system.”
FORWARD GUIDANCE IS A KEY TOOL
“In terms of the forward-looking guidance, it is a part of the armoury of every major central bank … It is one of the key tools that we as the central banks have, and it is particularly relevant in the following situations: one, when equilibrium interest rates are very low, secondly, when you are at the turning points.”