BoE: Mixed messages - Deutsche Bank

The Bank of England is set to hold interest rates at 0.5% on Thursday as a sharp slowdown in economic growth is expected to put plans for a rise on the back burner

The Bank of England is set to hold interest rates at 0.5% on Thursday as a sharp slowdown in economic growth is expected to put plans for a rise on the back burner

The Bank's forecasts are still based on financial market expectations for three rates rises over the next three years, with one seen later in 2018 followed by another in 2019 and one in 2020, to bring inflation back to the 2% target in two years. Despite Carney's assurances that "an ongoing, modest tightening" is still on the cards, the Monetary Policy Committee's decision to wait for momentum to reassert itself after weak first-quarter data now leaves economists asking if the bank will be in a position to help should Brexit go wrong. For many economists, a 25 basis-point rate increase could happen in August.

Heavy snow slowed economic growth in much of Europe in March.

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

Sterling steadied in early trade, having fallen to a four-month low against the dollar on Tuesday, as markets priced diverging prospects for growth and interest rates on the two sides of the Atlantic.

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 BoE raised rates for the first time in more than a decade in November, reversing an emergency cut made after June 2016's Brexit vote. In the weeks leading up to the actual decision, there had been some speculation that the Bank would act to tighten monetary policy on the back of Governor Mark Carney's comments, but it has been odds on for some time that the MPC would delay a rise until (probably) August. That reflects the soft growth seen at the start of the year.

Not helped by the earlier timing of Easter, retail sales decreased by 4.2 per cent on a like-for-like basis in April compared to the same month previous year, the biggest ever decline since the British Retail Consortium and KPMG records began in 1995.

Carney said data looked "mixed" and hinted at MPC disagreements.

Policy makers also acknowledge that interest rates are still low enough to stoke growth and that the economy risks overheating.

Besides making financial markets more volatile, the uncertainty on the path of interest rates can complicate planning for companies and households that have to decide, for example, when to take out a loan or repay debt.

This week it voted to hold rates at 0.5 per cent because of disappointing...

He added: "As negotiations progress this year, the medium time economic climate will become more clear".

"If the economy slows. then we will adjust policy", he said.

"Overall, our United Kingdom team noted that given the lower urgency for a rate hike due to the need for "limited tightening" over the forecast horizon, they see an increase in rates contingent on growth bouncing back and negotiations on the Brexit front staying positive, while their call for an August rate hike stands".

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