Published: Fri, May 11, 2018
Markets | By Erika Turner

Bank of England leaves rates on hold

Bank of England leaves rates on hold

The Monetary Policy Committee has today made a decision to keep the Bank of England base rate at 0.50%, with seven committee members voting to keep it on hold, and just two wanting to raise it.

The Bank of England has put back plans for an increase in interest rates after the weaker-than-expected performance of the economy in early 2018.

Policymakers Ian McCafferty and Michael Saunders, who again voted for a rate rise, agreed the weak growth so far this year reflected "temporary or erratic factors", but said delaying a rate hike risked more abrupt tightening later on.

He said the bank wanted to see a growth pick-up in coming months before raising borrowing costs.

With the US Dollar (USD) losing some of its previous bullishness, however, the mood towards the Euro has picked up. This was a outcome of the snow-impacted activity in Q1, which saw growth for that quarter come in at just 0.1% quarter over quarter in the preliminary estimate. The group's chief executive Carolyn McCall noted that the group had "started the year well both on and off screen". They may also be keen to maintain expectations of an interest hike to avoid weakening the Pound and giving inflation a boost.

The bank had previously raised its key rate in November 2017, which was the first hike in a decade.

The report added inflation had fallen back "more rapidly than expected" at its February meeting, with "pass-through of the past depreciation of sterling to import prices" is "somewhat smaller than previously thought". These projections are conditioned on a gently rising path for Bank Rate over the next three years.

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While the decision not to raise rates will be welcome news to those about to buy a home or remortgage it will be less well received by savers with funds languishing in savings accounts that can't beat inflation.

Any decline in full time employment may give investors incentive to pile out of CAD exchange rates, as a looser labour market would encourage the Bank of Canada (BOC) to remain on hold for longer.

Bank of England Governor Mark Carney has defended himself against a charge that his public comments on interest rate moves lack credibility. There's still a lot of uncertainty over Britain's post-Brexit relationship with the EU.

- The Bank's economic forecasts will also be important as GBPUSD stabilizes after its recent sharp falls.

'As negotiations progress this year, the medium term outlook will become clearer'.

The bank said recent reports of sluggish economic activity were enough to convince the majority of MPC members to keep rates on hold. The UK manufacturing production report will be released soon.

The slowdown in the first three months of the year was one of two reasons why the Bank stayed pat.

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