BoE keeps rates on hold pending economy’s performance in 2H2018

The Bank of England (BoE) today decided to keep interest rates at 0.5% in measured response to relatively weak economic data for 1Q2018.

The BoE has already revised down its forecasts for 2018, said it expected economic growth would increase over the course of the year. BoE governor Mark Carney said: “The overall economic climate in the UK looks little changed thus far”.

Speaking to reporters this morning, Carney asked, “What’s the sensible thing to do? Do you act now or do you wait to see evidence that momentum is re-asserting?”

The announcement comes just weeks after observers seemed almost unanimous in their predictions of a May rise in interest rates. Quilter Multi-Asset portfolio manager and head of investment, Anthony Gillham, said: “Just a few weeks ago a rate rise was seen as close to certain, with 90% of the market predicting a hike. That consensus was gradually eroded by a slew of disappointing numbers across the board.”

Brexit uncertainty
Commenting on today’s decision, which was carried by the board’s vote of 7-2, Philip Smeaton, chief investment officer at Sanlam UK, said: “A wave of weak data points washed over any chance of the BoE raising rates today. As Brexit looms on the horizon the UK economy is growing slower than global peers, with no acceleration in sight.”

Kevin Doran, chief investment officer at AJ Bell, said: “In a world where other central banks are seeking to normalise their rates, the combination of slow growth and Brexit uncertainty must surely be raising some concerns about the size of the current account deficit.”

Quilter’s Gillham concluded: “By holding off from a rate rise today, the Bank gives itself breathing room to raise rates later in the year if the picture improves.”

Christopher Copper-Ind
Christopher Copper-Ind is Publisher and Editor of International Investment. His previous publishing experience focused largely on the Middle East and emerging markets, and he was Editorial Director of The Business Year, based in Istanbul, for three years before moving back to London in 2017. He is the author of How to Negotiate, to be published by Macmillan in 2019.

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