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

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

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

Inflation was seen dropping to 2.1 percent in a year's time, and returning to target a year later, but only if interest rates rose by 25 basis points about three times over three years, as markets expect. The following month, two of the BoE's nine Monetary Policy Committee (MPC) members voted for an increase to 0.75 percent. Accordingly, the Bank has trimmed its full year growth forecast (issued in February) down from 1.8% to 1.4%.

The Inflation Report added inflation had fallen back "more rapidly than expected" at its February meeting, with "pass-through of the past depreciation of sterling to import prices" is "somewhat smaller than previously thought".

The rate has now changed just twice since March 2009 when it was lowered to a then record low of 0.5 percent in the wake of the financial crisis.

Sterling on Friday headed for its fourth successive weekly decline versus the dollar, in what would be a first for the currency since 2015, after the Bank of England held rates and cut its economic growth projections.

But the bank's caution is not expected to last indefinitely. The MPC did underline that there were exceptional circumstances presented by Brexit, which is set to occur next March within the forecast horizon that the MPC considers.

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

In minutes of the MPC meeting, the Bank said: "Weakness in the data for the first quarter had been consistent with a temporary soft patch, with few implications for the current degree of slack or for the outlook for the United Kingdom economy". Quilter Multi-Asset portfolio manager and head of investment, Anthony Gillham, said: "Just a few weeks ago a rate rise was seen as close to certain, with 90% of the market predicting a hike".

Moreover, subsequent surveys of business and consumer activity showed little rebound in April - adding support to the view of Britain's statistics agency that the slowdown in first-quarter growth to 0.1 percent was largely unrelated to the weather.

The pound recovered somewhat on Thursday after Bank of England Governor Mark Carney told the BBC that he expected a rate rise over the course of the next year if there were no shocks to the economy.

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