Bank of England holds United Kingdom interest rates at 0.5%


The Bank has described recent disappointing economic data as a "temporary soft patch", implying rates will rise in the fullness of time (with interest rates near an all time low, this is one of the safest of bets and only a question of timing).

In a Reuters poll published on Wednesday, all but three of 62 economists polled between May 3 and 8 expected no change in rates. For many economists, a 25 basis-point rate increase could happen in August.

The decision ends a roller-coaster ride for investors who had expected an increase until a few weeks ago, when data revealed a near standstill in economic growth and slower-than-expected inflation. Growth was weakest in Britain, where Brexit-related pressures have squeezed consumer spending power and hurt firms' willingness to sign off on major investments.

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.

Sterling has tumbled to $1.35 in recent weeks from its post-Brexit vote highs of close to $1.44 and erased its gains against the dollar for the year.

"The Committee's best collective judgement therefore remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon", it said in a summary of the MPC's meeting.

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After a slew of poor economic data in recent weeks, the central bank now expects the United Kingdom economy to grow by a paltry 1.4 per cent this year - markedly lower than the 1.8 per cent it had previously pencilled in. The pound, which last month hit its highest level since the country voted to leave the European Union in June 2016, at $1.40, is faltering again.

How households have seen interest rates change over the last couple of years.

Carney said data looked "mixed" and hinted at MPC disagreements. However, at the same meeting during which the Bank's MPC voted to hold interest rates steady, they also downgraded their forecast for the year's economic growth from 1.8% to 1.4%.

However, the BoE may not be comfortable with this scaling-back of interest rate expectations, which has the potential to fuel inflation through a weaker pound and cheaper credit.

He added: "As negotiations progress this year, the medium time economic climate will become more clear". "They expect us to be prudent, not passive", he said.

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".