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Published: Fri, May 11, 2018
Economy | By Melissa Porter

As economy weakens, Bank of England holds off on rate hike

As economy weakens, Bank of England holds off on rate hike

With the US Dollar (USD) losing some of its previous bullishness, however, the mood towards the Euro has picked up. That is something that households and businesses understand, he said. "Survey indicators, and evidence from the Bank's (regional) agents, suggested that growth had been somewhat stronger in the first quarter than implied by the preliminary estimate". "We don't think that the MPC needs to see stellar data: a rebound to trend growth would most likely be sufficient".

LONDON - The Bank of England on Thursday left interest rates unchanged at 0.5%, as had been widely expected by markets and commentators alike.

Overnight interest swaps now price in a chance of just over 10 percent that the BoE will not raise interest rates at all this year - with a rate hike delayed until early 2019 - compared with a near-certainty of a 2018 rate rise earlier.

Senior economist Ben Brettell said: "Not for the first time, Mark Carney's policy of guiding the markets as to what to expect has backfired". This is good news for borrowers but piles yet more misery on savers.

He said Thursday that rates would rise, albeit modestly, if the economy evolves in line with the bank's new projections.

'The prospect of a tight labour market, a bubbling crude and weaker sterling seems set to only stoke inflation higher in coming months, with little solace on offer from the Bank, ' he added.

Quite simply, GBPUSD will strengthen if his comments are sufficiently hawkish to suggest a rate rise in August is likely, while optimism about the economy in the Inflation Report would bolster those expectations. 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. It is, effectively, the fundamental interest rate on which most commercial interest rates on standard bank accounts and loans are ultimately based (though of course other things like risk will play a part when calculating interest on loans). Wage growth was forecast to pick up slightly less strongly this year than had been forecast before.

Export growth and investment should be particularly important drivers of growth, aided by the weak pound, the Bank believes. Moreover, the purchasing managers' index for the United Kingdom manufacturing sector, a forward-looking indicator widely watched in the markets, fell to a 17-month low in May.

Meanwhile after a raft of High Street names, including, have announced actual or planned store closures recently, the latest data this week showed retailers saw sales fall "off a cliff" last month.

In another sign of slow growth in 2018, the British Retail Consortium said on Wednesday that overall retail spending contracted by 3.1% year-on-year in April. He judged the Q1 slowdown as temporary due to erratic factors and signalled that the MPC now waits for when the momentum is going to be re-established.

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