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Bank of
England policymakers fear China’s slowdown could “add to the global
headwinds” facing the UK economy in the coming months, but it is too early to
derail their plans to raise interest rates off course.
One member of the Bank’s nine-member monetary policy committee, former CBI economist Ian McCafferty, voted for an immediate increase in borrowing costs from their record low of 0.5% at the meeting that concluded on Wednesday — the same voting pattern as in August.
But the minutes of the meeting, published on Thursday, offer the first insight into how UK policymakers are weighing the potential costs of China’s downturn for economic recovery at home.
Developments in China, where crashing share prices and a devaluation of the yuan unleashed shockwaves across global financial markets in August, were, “the main focus of the committee’s decision”, the minutes show. They concede that, “these developments have the potential to add to the global headwinds to UK growth and inflation”.
However, balancing the risks for the UK from a Chinese downturn against robust domestic demand, the MPC concluded there was not yet any reason to tweak the relatively upbeat forecasts for the economic outlook set out in last month’s quarterly inflation report.
“Global developments do not as yet appear sufficient to alter materially the central outlook described in the August Report, but the greater downside risks to the global environment merit close monitoring for any impact on domestic economic activity”, the minutes say.
Mark Carney, the Bank’s governor, has made clear that he believes interest rates may have to start rising around “the turn of the year”, but will increase more slowly, and to a lower level, than in previous years. He used his recent speech at the annual gathering of central bankers in Jackson Hole, Wyoming, to play down the impact of China’s woes on UK policy.
At home, the MPC says, “domestic momentum is being underpinned by robust real income growth, supportive credit conditions, and elevated business and consumer confidence”.
Policymakers appear to be divided about how to read the growing signs of a slowdown in the labour market, after the latest official figures showed a slowdown in employment growth. “On one view, the slowing employment data might imply that labour demand had plateaued, and that this would keep pay growth muted,” the minutes say. “On another view, however, the slowdown in employment might reflect greater hiring difficulties, consistent with survey evidence of skills shortages”.
Thursday’s minutes also repeat the formula that Carney’s “forward guidance” about the future pace of interest rate rises is, “an expectation, not a promise”. Markets currently expect interest rates to start increasing in the middle of 2016
One member of the Bank’s nine-member monetary policy committee, former CBI economist Ian McCafferty, voted for an immediate increase in borrowing costs from their record low of 0.5% at the meeting that concluded on Wednesday — the same voting pattern as in August.
But the minutes of the meeting, published on Thursday, offer the first insight into how UK policymakers are weighing the potential costs of China’s downturn for economic recovery at home.
Developments in China, where crashing share prices and a devaluation of the yuan unleashed shockwaves across global financial markets in August, were, “the main focus of the committee’s decision”, the minutes show. They concede that, “these developments have the potential to add to the global headwinds to UK growth and inflation”.
However, balancing the risks for the UK from a Chinese downturn against robust domestic demand, the MPC concluded there was not yet any reason to tweak the relatively upbeat forecasts for the economic outlook set out in last month’s quarterly inflation report.
“Global developments do not as yet appear sufficient to alter materially the central outlook described in the August Report, but the greater downside risks to the global environment merit close monitoring for any impact on domestic economic activity”, the minutes say.
Mark Carney, the Bank’s governor, has made clear that he believes interest rates may have to start rising around “the turn of the year”, but will increase more slowly, and to a lower level, than in previous years. He used his recent speech at the annual gathering of central bankers in Jackson Hole, Wyoming, to play down the impact of China’s woes on UK policy.
At home, the MPC says, “domestic momentum is being underpinned by robust real income growth, supportive credit conditions, and elevated business and consumer confidence”.
Policymakers appear to be divided about how to read the growing signs of a slowdown in the labour market, after the latest official figures showed a slowdown in employment growth. “On one view, the slowing employment data might imply that labour demand had plateaued, and that this would keep pay growth muted,” the minutes say. “On another view, however, the slowdown in employment might reflect greater hiring difficulties, consistent with survey evidence of skills shortages”.
Thursday’s minutes also repeat the formula that Carney’s “forward guidance” about the future pace of interest rate rises is, “an expectation, not a promise”. Markets currently expect interest rates to start increasing in the middle of 2016
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