Carney says United Kingdom outlook 'clouded' by Brexit uncertainty

Joann Johnston
May 13, 2018

To nobody's great surprise, the Monetary Policy Committee of the bank of England has made a decision to leave interest rates unchanged at 0.5%.

The Bank of England's Monetary Policy Committee have voted 7-2 to maintain Bank Rate at 0.5%, the same ratio as in its last meeting. Britain's economy grew more slowly than most of its peers previous year, after a Brexit-driven jump in inflation hit consumer spending power and some businesses delayed long-term investment.

"Six years into the current economic cycle, we are arguably closer to the end than the beginning and when the eventual slowdown does come it is important that the Bank of England has sufficient room to cut interest rates in order to stimulate the economy". 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.

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

The BOE governor spoke after officials kept the key interest rate at 0.5 percent, citing the first-quarter slump, and said inflation will weaken faster than previously thought. While the subdued first quarter outturn signified that the full-year growth estimates was lowered, unchanged forecasts for 2019 and 2010 meant that the central bank's broader views on the economy were left intact, stated Lloyds Bank.

"The signals from the Bank if you go back to before those outcomes was quite clear that they had the intention to hike".

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Bank of England governor Mark Carney.

"Those looking for interest rate movements should point their gaze to August and November as these meetings are accompanied by the quarterly inflation report".

All but three of the 62 economists polled from May 3-8 expect no move from 0.5 percent this month - a complete reversal from an April 18 poll when 69 of 76 economists had a 25 basis point increase penciled in for May 10.

"It is notable though that the minutes indicate that most MPC members want to see how the economic data evolves over the coming months to make sure that the first quarter slowdown was temporary", said Archer.

"The Monetary Policy Committee judges that an ongoing, modest tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target".

Frances Haque, Santander's United Kingdom chief economist, commented: "The MPC's decision was widely expected given the disappointing economic data for Q1 2018, with GDP growth being significantly below expectations and inflation surprising to the downside". 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. Ian McCafferty and Michael Saunders, the two most hawkish members of the MPC, voted to increase the rate to 0.75%.

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