BoE keeps rates on hold pending economy's performance in 2H2018

11 May, 2018, 04:21 | Author: Irvin Gilbert
  • Mortgage

The Bank of England's Monetary Policy Committee have voted 7-2 to maintain Bank Rate at 0.5%, the same ratio as in its last meeting.

The rise in the oil price, now up over 50% since September last year, hasn't as yet prompted a re-evaluation in this year's economic forecasts but as can be seen from recent weak consumer data, in Europe, the United Kingdom, as well as the USA, it could well be starting to have an effect in some of the more recent retail sales numbers.

Bank Governor Mark Carney had already weakened expectations for a May rate rise when he signalled last month that "mixed" economic data could delay the increase. There has been no sharp increase in swap rates or fixed rates in the mortgage market.

In the first three months of the year, the British economy barely grew, expanding at a quarterly rate of just 0.1 percent, with the construction sector faring particularly badly.

The Pound Sterling (GBP) exchange rate tumbled against the majority of its peers on Thursday as the Bank of England left its monetary policy unchanged in May.

For 2019 and 2020, it predicted growth of 1.7 per cent, down from 1.8 per cent in its February forecasts.

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"Given previous remarks from the MPC on the timing and the path of future rate hikes, the question now remains as to when the Committee will look to increase rates in 2018, assuming that growth picks up again in the coming months".

Recent data "had been consistent with a temporary soft patch, with few implications for. the outlook for the United Kingdom economy", most of the BoE's rate-setters said. The BOE is anxious that weak productivity growth and subdued investment since the 2016 Brexit vote make it hard for the economy to meet nearly any strengthening of demand without overheating.

"With a May rise in rates looking like a formality in April, the recent turnaround has proven that the outlook remains constantly uncertain and whether to raise continues to be a tricky decision for the Bank of England".

"But while it held fire this month, we can not yet rule out further rate rises in the near to medium-term".

Meanwhile the USA dollar fell as more signs emerged of U.S. inflation cooling down, with the latest sign being a soft Consumer Price Index reading, which followed lower-than-expected Producer Price Index on Wednesday and weak wage growth last week. It said this would come in the form of two 0.25% rate hikes, believed to be in May and November.

'At this meeting, the costs to waiting for additional information were likely to be modest, given the need for only limited tightening over the forecast period to return inflation sustainably to the target'. Thursday's forecast shows inflation should drop to 2.4 percent by year-end, instead of the previously forecast 2.7 percent. The group's chief executive Carolyn McCall noted that the group had "started the year well both on and off screen".

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