Bank of England keeps interest rates on hold on first-quarter slump

11 May, 2018, 01:42 | Author: Barbara Daniel
  • 39;Any other decision would now be a major surprise to markets’ Chances of a May rate hike falls to just 8

Looking ahead the Bank of England (BoE) will conclude its latest policy meeting this afternoon, and while no policy changes are expected investors will be looking for any signs a rate hike may still be possible in 2018.

This is due to Brexit, protectionist risks overseas, and recent purchasing manager surveys pointing to sluggish domestic economic activity.

The Bank of England decided Thursday to not raise interest rates again and cut its forecast for British economic growth this year, blaming the downgrade nearly entirely on the cold and snowy weather that gripped the country in late-winter.

Two members of the committee - Michael Saunders and Ian McCafferty - said rising pay caused by falling unemployment required an immediate increase in interest rates.

Furthermore, in an interview with the BBC on 20 April, Mark Carney attempted to quell market expectations of a May hike arguing there was still a lot of data to consider. "However what it will depend on is the degree to which the economy recovers from the Q1 dip and how it compares to the Bank of England's forecasts over the rest of the year".

The Bank of England has kept interest rates on hold at 0.5% and cut its growth forecast for this year.

The UK economy experienced its worst quarter in five years.

The rate was further lowered by 25 basis points in the wake of the Brexit vote in the summer of 2016 and was raised back to 0.5 percent at the end of previous year.

"We'll have found out the decision on the UK's divorce settlement from the European Union by October and the Bank can make any decisions with this in mind", Brandreth said.

Quite simply, GBPUSD will strengthen if his comments are sufficiently hawkish to suggest a rate rise in August is likely, while optimism about the economy in the Inflation Report would bolster those expectations.

Tom Stevenson, investment director for personal investing at Fidelity International, added: "Mark Carney really is the "unreliable boyfriend".

They also point to a roughly 40 percent chance of a rate hike this August, which had been the consensus among economists polled by Reuters earlier this week. Then all those assumptions were dashed by weak economic figures.

"The MPC judges that the impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought", the committee said.

But the Bank's quarterly forecasts revealed there was some doubt around the underlying economic picture in the United Kingdom, clouded by the recent weather impact, with the Bank noting "greater-than-usual uncertainty" over consumer spending.

While the decision not to raise rates will be welcome news to those about to buy a home or remortgage it will be less well received by savers with funds languishing in savings accounts that can't beat inflation.

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