As UK economy slows, central bank holds off rate increase

11 May, 2018, 00:33 | Author: Terri Saunders
  • FTSE edges up before BoE meets, RBS gains

However, a downturn in recent economic data has created a lot of doubt and it's expected today will see a dovish MPC and interest rates left on hold once again.

The Bank of England will give its rate decision at the conclusion of the two-day Monetary Policy Meeting on Thursday at 12:00.

Howard Archer, chief economic adviser at the EY Item Club, said: "Recent events have made an interest rate hike on Thursday seem progressively less likely - to the extent that it now looks a very long shot".

"It's likely over the course of the next year rates will go up. that's the most likely thing to happen", Mr Carney said in an interview with the BBC, the broadcaster said.

Although rates remain at a very affordable level, even a slight increase could have further dampened the hunger of United Kingdom home buyers, and in a misfiring market that is already struggling to whet their appetite, this may have further stunted price growth.

Two members of the committee - Michael Saunders and Ian McCafferty - said rising pay caused by falling unemployment required an immediate increase in interest rates. Only a week later, the first quarter GDP (gross domestic product) print came in at a tepid 0.1 percent quarter on quarter, below consensus of 0.4 percent and the BOE's own forecast of 0.3 percent.

'Despite the welcome agreement on a transition period, the terms on which the United Kingdom will trade with the European Union and beyond that period remain to be determined. "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".

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'As negotiations progress this year, the medium term outlook will become clearer'. Whilst the GDP data was hugely disappointing growing just 0.1% quarter on quarter, a good deal of the data and modelled data are linked to unseasonable cold weather supporting the idea that the weak prints were likely to be one off's rather than a more serious structural change in the economy.

Even so, the seven members of the MPC who voted for no change said they wanted confirmation that the economy had merely been going through a soft patch before voting for higher rates.

Export growth and investment should be particularly important drivers of growth, aided by the weak pound, the Bank believes.

GBP/EUR fell from 1.1450 to 1.1380 after the release of the report.

How the Bank now sees inflation playing out over the next three years.

Nevertheless, the GBP/CAD exchange rate could find a rallying point on Friday afternoon if April's raft of Canadian jobs and wage data fails to impress.

They repeated their calls for a rise to 0.75% to avoid more "abrupt" policy action further down the line.

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