Sunday, 19 August, 2018

Bank of England keeps rates unchanged

Wanted! A strategic approach to UK monetary policy BoE Strongly Expected to Leave Rates on Hold
Elsie Buchanan | 11 May, 2018, 00:48

"Unless the economic news worsens significantly or the Brexit negotiations collapse, we are still set for rises over the coming year", Urwin said. "They expect us to be prudent, not passive", he said. A crippling combination of negative economic data, disappointing growth figures and another reversal in tone from BoE Governor Mark Carney has been the driver behind these minimal expectations of a United Kingdom interest rate rise today'.

The bank expects inflation to ease back to 2.1 percent by this time next year and get to target in two years, provided the main interest rate rises to 1.1 percent in two years and to 1.2 percent in three years.

This was a major reversal from the outlook less than a month ago, when it was overwhelmingly thought that the bank was on track for a rate rise in May, and prompted a sharp downturn in the GBP/EUR and GBP/USD exchange rates. Their forecasts for the year were reduced principally to take into account the lower than expected performance that has already been and gone - growth predictions for subsequent years remain unchanged.

May Inflation report is a dovish turn from the Bank of England that tried to downplay the erratic effect of the economic slowdown at the beginning of this year, but still saying that inflation drivers will be increasingly on domestic side moving away from the effect of past Sterling depreciation. At its meeting ending on 9 May 2018, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.5%. These projections are conditioned on a gently rising path for Bank Rate over the next three years.

But Threadneedle's Street belief that the economy actually grew more strongly than the 0.1% estimated by the Office for National Statistics will keep alive speculation that a quarter-point increase in borrowing costs is possible when the next inflation report is released in August.

José Mourinho: some of my players too mentally weak for Manchester United
You buy a central defender, you don't like, and you buy another one. And some others, I don't believe they are going to make it. Not two, three or four - a lot of points.


What is the base rate?

But the Bank said it expected Q1 growth figures to be revised higher, estimating underlying growth at around 0.3%, while it added activity would bounce back in the second quarter.

"An ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon", the BOE said. Surveys have suggested little rebound last month.

Meanwhile, the US Consumer Price Index (CPI) will be out in today's session which could create some GBP/USD exchange rate movement.

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