Published: Sat, May 12, 2018
Economy | By Shawn Conner

Interest rates held despite rise speculation

Interest rates held despite rise speculation

Amid signs of a strengthening economy, there had been anticipation that the Bank of England England's Monetary Policy Committee would raise the base rate to 0.75%.

Seven out of nine of the MPC members voted to keep the base rate on hold.

Further weakening the appeal of Sterling was the BoE's accompanying growth forecasts for 2018, which saw its previous forecasts revised down from 1.8% to 1.4% in response to the disruption caused by the heavy snow in the first quarter. Wage growth was forecast to pick up slightly less strongly this year than had been forecast before.

As of 1500 GMT the 10-year gilt yield GB10YT=RR was down four basis points on the day at 1.42 percent. "This is not an economy that is growing at robust rates", but growth in demand was still likely to outstrip growth in supply over the Bank's rate horizon. The current economic picture is somewhat gloomier than predicted back in November. For now, though, it's carpe diem for mortgage-seeking landlords, particularly those who prefer variable rates. The pound, which last month hit its highest level since the country voted to leave the European Union in June 2016, at $1.40, is faltering again.

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In February, Carney said rates might need to rise somewhat faster than markets had expected, given the country's long-term productivity problems. "Do you act now or do you wait to see evidence that momentum is reasserting (itself)", Carney told reporters when asked about signals from the BoE earlier this year that a rate hike was approaching.

"With a May rise in rates looking like a formality in April, the recent turnaround has proven that the outlook remains constantly uncertain and whether to raise continues to be a tricky decision for the Bank of England". Brokers will be able to provide reassurance by assessing borrowers' individual circumstances to ensure the nature of their situation is fully understood before any lending decisions are made.

Though the national statistics office downplayed the impact of the cold weather on growth, the Bank of England said the so-called "Beast From the East" cold weather front was a key factor. It fell another 0.2 percent Thursday to $1.3500.

"The Bank of England May Inflation Report says". "7-2 vote, but more significant is the BoE's belief that the United Kingdom grew at 0.3% in Q1, NOT 0.1%, so economy not as weak as some data suggests with very limited degree of slack".

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Explaining their decision to stand pat this month, the majority of the MPC noted the recent weak numbers.

Cheetham said that hike "now appears to have been more a case of a reversal of the post-Brexit cut rather than the beginning of a sustained cycle of interest rate increases".

On Friday the currency rose 0.1 percent versus the dollar at $1.3533 and increased 0.1 percent against the euro at 88.090 pence.

CPI was also now seen returning to target more quickly, falling to 2.4% over the course of 2018, instead of 2.7%, and then to 2.1% over the course of 2019.

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