Bank of England to decide on whether to raise rates

Kelvin Reese
May 13, 2018

Gross domestic product (GDP) slowed sharply to 0.1%, down from 0.4% in the previous three months, as the impact of the Beast from the East compounded woes in consumer-facing and construction sectors.

Bank Rate will instead rise to 0.75 percent in August, medians in the poll said, and then to 1.0 percent in the second quarter of 2019, just after Britain is scheduled to leave the European Union. Britain's economy grew more slowly than most of its peers a year ago, after a Brexit-driven jump in inflation hit consumer spending power and some businesses delayed long-term investment.

Mark Carney said the Bank of England still intends to deliver "modest" tightening after an unexpected economic slowdown derailed an interest-rate hike that investors had anticipated as soon as this month.

Experts had thought the Monetary Policy Committee would vote to put this up to 0.75 per cent this week, with members Ian McCafferty and Michael Saunders having argued of the need to react to inflationary pressures at the last meeting in March.

But late last month, data started to raise doubts.

The bank governor's guidance on the path for interest rates has repeatedly been knocked off course by surprises in the economy, hence the accusation of unreliability from a lawmaker.

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"If the forecasts are right then expect interest rates to remain lower for longer as United Kingdom growth lags the rest of the world, inflation subsides and Brexit clouds remain. With rates still rooted at emergency levels, this is one of the challenges faced by the Bank and how it chooses to deal with this will be key to the success of the United Kingdom economy in coming years". Their forecasts for the year were reduced principally to take into account the lower than expected performance that has already been and gone - growth predictions for subsequent years remain unchanged.

"The signals from the Bank if you go back to before those outcomes was quite clear that they had the intention to hike".

Minutes of the meetings are published after the rates decision has been announced.

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). The financial markets are expecting three quarter-point increases over the next three years.

Frances Haque, Santander's United Kingdom chief economist, commented: "The MPC's decision was widely expected given the disappointing economic data for Q1 2018, with GDP growth being significantly below expectations and inflation surprising to the downside".

"We expect the data to improve in the coming months, allowing the Monetary Policy Committee to hike Bank Rate in August". The BoE said the economy would grow by 1.4 percent this year, down from the 1.8 percent it predicted in February, with slowing consumer lending and a sluggish housing market creating greater-than-usual uncertainty about consumer demand.

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