As economy weakens, Bank of England holds off on rate hike
As economy weakens, Bank of England holds off on rate hike
Bank of England governor Mark Carney is set to announce interest rates tomorrow
12 May, 2018, 08:16
Announcing this decision, the Bank also cut its growth forecast for 2018 from 1.8 to 1.4 per cent.
Ian McCafferty and Michael Saunders, the two most hawkish members of the MPC, voted to increase the rate to 0.75%.
"We think the bar for a hike in August is now as high as 0.5% q/q growth in Q2 as well as uninterrupted improvements in the labour market".
The BoE left interest rates on hold at 0.5 percent in its May policy meeting.
With the US Dollar (USD) losing some of its previous bullishness, however, the mood towards the Euro has picked up. "This report wasn't a great advert for clarity in central bank communication".
First-quarter economic growth was a disappointing 0.1%, and the Office for National Statistics (ONS) said the bad weather wasn't to blame. This could result in a rapid fall in headline inflation at a time when wage growth is picking up.
While they expect it to recover from a weak start to the year, there is a risk that the slowdown could be more persistent.
Financial markets had seen a rate hike this month as a near certainty until the recent first quarter data shock and subsequent gloomy reports from different sectors of the economy. The forecasts on Thursday showing inflation weakening faster than anticipated pushed market expectations for tightening this year below 100 percent. This is good news for borrowers but piles yet more misery on savers.
Whilst the Bank of England (BoE) did not have early access to today's data, it could still effect the sentiment of Bank Governor Mark Carney in his later press conference and indeed the outlook moving forward.
"While the storms of February and March have given way to sunnier skies, the economic outlook for the United Kingdom remains clouded by Brexit uncertainties", Carney said.
Richard Barwell, head of macro research at BNP Paribas Asset Management UK Ltd., said he doubts Carney's contention that he's speaking mainly to the wider public.
He added: "As negotiations progress this year, the medium time economic climate will become more clear". "Do you act now or do you wait to see evidence that momentum is reasserting (itself)", Carney told reporters when asked about signals from the BoE earlier this year that a rate hike was approaching.
Growth in 2019 and 2020 has been also been cut from 1.8% to 1.7%.
"However, we shouldn't remain under the impression that today's outcome will last forever". It particularly affected construction, Carney said.
The latest commentary from the European Central Bank did not provide any real surprises to investors, leaving Euro (EUR) exchange rates without any particular rallying point.
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