Bank of England keeps rates at record low as economy slows
13 May, 2017, 10:16 | Author: Glen Fletcher
"But any instinct he might have to raise interest rates to rein in inflation is being kept firmly in check by the Bank's unwritten commandment - "thou shalt not jeopardise growth".
The MPC is forecasting the rate to remain at this level throughout 2017 and to rise to just 0.5% by mid-2020; around 20 basis points lower than its forecast in February.
Inflation is now running at 2.3 percent, above the bank's target rate of 2.0 percent, raising the possibility that the bank could lift rates to dampen rising prices.
With only a month until a national election, the BoE said the short-term squeeze on households from inflation since June's Brexit vote would be more severe than it predicted in February, with price growth peaking at over 2.8 per cent late this year. The pound GBPUSD, -0.1778% was buying $1.2937, little changed from $1.2939 late Wednesday in NY.
The Bank of England said that consumers were beginning to feel the pinch from surging inflation as the pound's plunge since the Brexit vote has pushed up prices. For now, it seems the Bank of England will be sitting tight on a rate rise given the headwinds the United Kingdom economy faces and the strengthening of the pound.
"Wage growth, which has been notably lacklustre of late, is seen picking up sharply next year". Raising interest rates would help limit inflation but hurt growth by making borrowing more expensive for companies and households.
The Bank of England (BOE) released the minutes from their rate meeting and their quarterly Inflation Report today at 12 BST and they showed that only one member voted not to keep rates unchanged - the same as last meeting.
"Monetary policy could need to be tightened by a somewhat greater extent over the forecast horizon than the very gently rising path implied by the market yield curve at the time of the forecast", Carney said. "Unsurprisingly, there was no earth shattering changes to growth or inflation forecasts, with the possible exception of the 2017 (inflation) forecast".
Thursday's BoE (Shenzhen: 000725.SZ - news) rates decision quashed some bets in the market that more policymakers would join outgoing Kristin Forbes in voting for a rate hike.
Mr Carney warned that a "slowdown appeared to be in train" after a sharper-than-expected fall in consumer spending.
Wage growth - which has been weak in Britain since the financial crisis - is forecast to pick up to 3.5 percent next year from around two percent at present as businesses find it harder to recruit staff. Crucially, however, the BoE also slightly cut its growth forecast for this year, from 2% to 1.9% but lifted expectations for growth next year from 1.6% three months ago to 1.7%.
The Bank of England also Thursday made a decision to leave interest rates and the levels of monetary stimulus untouched.
Decently rational forecasts that could even have an upside surprise should the strength in the labour market continue - one that would encourage consumer spending.
Other European markets were also softer as "global political uncertainty continues to fester" as Charles Schwab analysts put it.
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