Bank of England cuts its growth forecasts for the UK

Australian Dollar Currency Forecast

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.

The timing of a rate hike has been complicated by the weakness in growth in the British economy.

"The speed limit, if you will, of the economy has slowed", he told reporters. And it has consistently stressed that as a result, the implications for monetary policy would not be automatic.

"We believe that it would be logical for the BoE to signal that it is moving closer to raising rates", MUFG currency analyst Lee Hardman said.

Richard Sexton, director of chartered surveyor e.surv, says: "With the current political and economic uncertainty, it is not a question of if, but when will rates eventually rise".

The Bank also increased the total amount of cash it is planning to print to support the economy from £545bn to £560bn. But the Bank nevertheless downgraded its investment growth forecasts for this year to 1 per cent, down from 1.75 per cent previously.

Chancellor Philip Hammond, who campaigned for Britain to remain in the European Union and is seen as a proponent of a relatively "soft Brexit", last week lent some support to sterling by saying he backed the transitional Brexit deal that Prime Minister Theresa May wants. The projections also assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment to that new trading relationship.

Commenting on today's interest rate decision and inflation report by the Bank of England's Monetary Policy Committee, Dr Adam Marshall, Director General at the British Chambers of Commerce (BCC), said: "The Bank of England's decision to keep interest rates unchanged is unsurprising, and reflects the more subdued levels of growth we have seen in United Kingdom business communities over recent months". The Bank now predicts GDP to rise by 1.7% in 2017, 1.6% in 2018 and 1.8% in 2019, down from 1.9%, 1.7% and 1.8% as outlined in the May Report.

"The 6-2 vote was as expected, however, the dovish growth and inflation (forecasts were) a surprise to the markets", said Mizuho's head of hedge fund FX sales, Neil Jones.

Since then one of the dissenters, Kristin Forbes, has left the central bank.

Ian McCafferty and Michael Saunders were the two MPC members that dissented in favor of a 25 basis points rate hike, expressing concerns over rising inflation.

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Chief Economist Andy Haldane made a hawkish shift in a speech a couple of weeks after June's decision, saying a "partial withdrawal of the additional policy insurance the MPC put in place previous year would be prudent relatively soon".

Fabrice Montagne, chief United Kingdom and senior European economist at Barclays, said: "We expect the Bank of England to downgrade its forecast in order to reflect disappointing data".

"Brexit even overshadows consumer borrowing, which the Bank has lately sounded anxious about".

"The door is still open to a hike, but it doesn't look imminent", Alan Clarke, a rate strategist with Scotiabank said, as quoted by Reuters.

The Bank kept its asset purchase programs unchanged on Thursday.

Policymakers agreed however to increase cheap lending for retail banks before the expiry of the Term Funding Scheme next February.

In its latest policy decision, the Monetary Policy Committee (MPC) maintained interest rates at 0.25%.

The split on the MPC over what to do with rates highlights the challenge facing the central bank.

The fall in the value of the pound has caused inflation to spike - it is expected to peak at 3 per cent in the autumn.

United Kingdom gross domestic product is now projected to grow 1.7% this year and 1.6% in 2018, down from 1.9% and 1.7% as previously predicted.

Underlying the squeeze on households from inflation, real wages will fall by 0.5 per cent this year, according to BOE's new forecast.

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