Bank of England cuts growth forecast amid wages warning

Bank of England cuts growth forecast amid wages warning

Bank of England cuts growth forecast amid wages warning

The Monetary Policy Committee, headed by Governor Mark Carney, voted 6-2 to hold the interest rate at a historic low of 0.25 percent.

Two members of the monetary policy committee (MPC), Ian McCafferty and Michael Saunders, wanted to put rates back to 0.5% immediately to curb inflation.

The BoE also lowered its growth forecast for the remainder of 2017, revising its forecast to 1.7%, down from the 1.9% estimated in May, with policy makers pointing to weak wage growth as the key motive for the bank's gloomier outlook.

Separately, the Bank has also made more money available to support lending.

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.

"The chances of a 2017 rate hike now look dead and buried", said Jake Trask, foreign exchange research director at OFX in London.

There were no changes to the bond-buying programme at the latest meeting.

Sterling fell by more than 0.8 per cent against the euro, to 0.90297p, approaching the 0.9182p low reached last November as "hard Brexit" fears were at their height.

That flurry of debate reflected the unusually divided vote at the last MPC meeting in June, when its eight members voted by only 5-3 to keep rates at their current level.

With low unemployment, wages are expected to rise.

Growth expectations for next year were also revised down from 1.7 per cent growth to 1.6 per cent.

The MPC's forecasts are based on the assumption of a smooth exit from the European Union with Carney arguing it is in both sides' interests to have a clear transition to "whatever the end state is".

It has been a year since the MPS first cut the rate to a historic low of 0.25% amid worries of economic collapse and a drop in corporate confidence in the wake of the Brexit referendum.

Carney on Thursday said that while consumers, in general, had first looked beyond warnings - including by the BoE - that Brexit risked harming the United Kingdom economy, there was no ignoring the fact that sentiment had taken a knock.

Speaking at an event organised by Fathom Consulting, Sir John highlighted that the Bank has already reversed measures implemented in the wake of the Brexit vote that were created to free up lending to the economy.

Nevertheless, GBP/USD retreated to 1.3145 having traded as high as 1.3268 after the slight improvement in the July services PMI.

In response to the painfully slow rises this year, the Bank cut its forecasts for wage growth in 2018 and 2019 to 3 and 3.25 percent, down by half a percent for each year.

The downturn for the British currency may be far from over, said FXTM research analyst Lukman Otunuga, blaming "the unsavoury combination of uninspiring United Kingdom economic data in July and uncertainty surrounding Brexit talks".

The policy makers said United Kingdom wages are expected to "remain subdued" for the rest of the year, while also cutting its salary growth for 2018 to 3% from 3.5% expected previously.

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