The UK monetary policy sandwiched between the US Federal Reserve and the ECB. The domestic private sector is expected to continue to drive the UK economy, which is forecast to expand by 2.3% next year. Nevertheless, downside risks remain, including the impact from further fiscal consolidation. Inflation is likely to rise at only a gradual pace, with annual CPI inflation projected to stay below 1% until the second half of 2016.
The potential for a rise in global commodity prices and stronger domestic price pressures should push CPI inflation appreciably closer to the 2% target in late 2016 and in 2017. The MPC's policy stance is therefore biased towards policy tightening, but policymakers have room to delay this until later next year. Assuming growth and inflation evolve broadly as expected, policy rates are forecast to be raised only once in 2016 in the summer by 25bps to 0.75%.
