Interest rates on hold as Bank cuts growth outlook

Interest rates on hold as Bank cuts growth outlook

Interest rates on hold as Bank cuts growth outlook

The BoE also left the Bank Rate unchanged at 0.5 percent, with only two out of nine rate-setting Monetary Policy Committee (MPC) members voted for a rise, with the two minority-view members being external appointees Ian McCafferty and Michael Saunders, with the BoE's six staff all voting for no rise. ING Groep NV's currency strategist Viraj Patel said sterling is "clinging on to a hawkish BOE".

However, depending on the voting pattern, the pound could rally more than 2 percent or fall 1.4 percent from around $1.3545 now, according to ING.

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.

A "subtle hawkish surprise" would be a 6-3 split, which will support speculation of an August hike, Patel said.

Financial markets had seen a rate hike this month as a near certainty until the recent first quarter data shock and subsequent gloomy reports from different sectors of the economy.

For Patel, sterling at $1.35 "looks overcooked relative to the more tempered BOE policy rate expectations".

However, JP Morgan economist Allan Monks said the BoE had sent a "muddled message" about its intentions. Carney has been labeled an "unreliable boyfriend", having already in the past flagged up a rate hike only to back out later.

"We think that momentum in the economy is going to reassert", Carney said.

CPI Inflation now sits at 2.3% and earlier predictions of solid economic growth through this year had led many to expect the Bank to vote to increase the base rate from 0.5%, where it has been for much of the past 8 years, bar a dip to 0.25% during 2017. It still sees a small amount of excess demand in the economy by early 2020.

"The UK economy seems rather fickle at present (and) even the Bank of England seems to be blowing hot and cold", said Hetal Mehta, an economist at Legal & General Investment Management. "As Brexit looms on the horizon the United Kingdom economy is growing slower than global peers, with no acceleration in sight". USA stocks meanwhile pushed further higher as the soft inflation reading lowered the prospects of three further Fed rate increases this year.

The Bank of England has backed away from raising interest rates following a sharp slowdown in growth.

Inflation was seen dropping to 2.1 percent in a year´s time, and returning to target a year later - sooner than previously thought - but only if interest rates rose by 25 basis points about three times over the next three years, as markets expect. If growth rebounds as we expect in 2Q the next increase in interest rates is likely to come in August,"said Dan Hanson, Bloomberg Economics".

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