Bank of England to hold rates after data downturn

Mark Carney

"Until a few weeks ago, a further quarter point rate hike to 0.75% looked nearly guaranteed". That was in line with forecasts from economists polled by Reuters in the past week.

"It's likely over the course of the next year rates will go up. that's the most likely thing to happen", Mr Carney said in an interview with the BBC, the broadcaster said. "Do you act now or do you wait to see evidence that momentum is re-asserting?"

Sterling fell on the news and was trading lower by 0.2% against the USA dollar at 1.352.

Money markets now show the probability of an August increase in borrowing costs as only about 50 percent, and a hike by the end of the year - previously fully priced in - at about 87 percent.

The announcement comes just weeks after observers seemed nearly unanimous in their predictions of a May rise in interest rates.

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

In minutes of the MPC meeting, the Bank said: "Weakness in the data for the first quarter had been consistent with a temporary soft patch, with few implications for the current degree of slack or for the outlook for the United Kingdom economy".

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"We expect the data to improve in the coming months, allowing the Monetary Policy Committee to hike Bank Rate in August".

The Bank remains fairly confident that this patch of reduced growth will be just that, a "temporary soft patch", and that more prolonged improvement should be on the horizon.

Martin Essex said: "Investors and traders will therefore be listening out for any hints by Carney on Thursday that a rate rise in August is on the cards; now market pricing suggests the chances are around 50/50". "The only people who throw that term at me are in this room", Carney told the news conference.

"Our UK economists noted that the meeting brought out mixed messages from the BoE". James Smith at ING said the approach of crunch negotiations about Britain's post-Brexit trade deal with the European Union could make it hard for the BoE to raise rates later this year.

Two members of the committee, Ian McCafferty and Michael Saunders, voted to increase rates to 0.75 per cent.

This is entirely because the rise in the cost of imported goods, caused by the weaker pound, is fading from the inflation figures more quickly than anticipated, relieving the pressure on households sooner.

Carney said the central bank was still prepared to raise interest rates again - having hiked them in November for the first time in a decade - if the economy picks up again, as expected. The BoE said the economy would grow by 1.4 percent this year, down from the 1.8 percent it predicted in February, with slowing consumer lending and a sluggish housing market creating greater-than-usual uncertainty about consumer demand. The near-stalling of the economy has led the MPC to cut its annual growth forecast to 1.4% for this year, although it has left its forecasts for 2019 and 2020 unchanged at 1.7%.

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