United Kingdom central bank keeps interest rates low as economy slows

Mark Carney

United Kingdom central bank keeps interest rates low as economy slows

On Thursday, rate-setters at the Old Lady of Threadneedle Street kept Bank Rate on hold at 0.50% and the size of the Bank's asset purchase programme at?435bn, both as had been widely expected.

According to Reuters, "Britain's economy grew more slowly than most of its peers past year after a Brexit-driven jump in inflation hit consumer spending power and some businesses delayed long-term investment".

The Bank of England (BoE) has downgraded its predictions for inflation and economic growth in Q2, as the prospects for the United Kingdom economy remain "clouded by Brexit uncertainty". If this rebounds as they expect then it is likely we could see a rate rise at any one of the upcoming meetings including June.

"Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank's newly lowered forecasts, suggest", he said. The MPC voted 7-2 to hold the rate steady, as predicted by all but three of 54 economists in a Bloomberg survey. It endorsed financial market predictions that there will be three quarter-point rate rises over the next three years, taking rates to 1.25 per cent in early 2021, by forecasting that inflation would hit its 2 per cent target under those assumptions.

However, the Bank described that as a "temporary soft patch" with "few implications" for the outlook for the economy. But this was due to a faster fading of the impact of the plunge in sterling on the price of imports, and that domestic inflation pressures continued to rise.

He added: "As negotiations progress this year, the medium time economic climate will become more clear".

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As recently as February economists were expecting the Bank to raise interest rates this month. Inflation has fallen after reaching its highest in more than five years in late 2017, but at 2.5 percent it is still well above the BoE´s 2 percent target.

The MPC forecast GDP growth averaging 1.75 percent for each of the years up to 2020.

However, after posting GDP growth of just 0.1 percent quarter-on-quarter in Q1 this year, and with the Pound having sunk to 1.3540 against the Dollar, the mood has now changed.

In November, the BoE raised rates for the first time in over a decade, reversing a cut made shortly after the Brexit vote.

"The tone of the MPC minutes and the forecasts contained in the May IR point very much to the BoE delaying rather than abandoning a gradual tightening of monetary policy", Dr Howard Archer chief economic adviser to the EY ITEM Club, told Xinhua.

"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".

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