Bank of England holds rate; trims growth forecast
The Bank of England on Thursday held its main interest rate at a record low 0.25 percent and crimped its economic growth forecast as Brexit uncertainties hit consumption.
One month before a British general election, BoE policymakers voted by 7-1 in favour of keeping the rate on hold and trimmed its 2017 growth forecast to 1.9 percent from 2.0 percent, the central bank said in a statement.
All eight members of the bank’s Monetary Policy Committee (MPC) opted to leave the amount of QE cash stimulus pumping around the economy at £435 billion ($560 billion, 515 billion euros).
Inflation is currently running at 2.3 percent, above the bank’s target rate of 2.0 percent, raising the possibility that the bank could lift rates to dampen rising prices.
Minutes from this week’s BoE meeting put the inflation jump down to the 16 percent fall in sterling since Britain’s vote to leave the European Union.
Policymakers also noted that monetary policy could not prevent “the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements”.
“Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth,” added the BoE statement.
Fawad Razaqzada, analyst at Forex.com, said the bank had delivered a “mixed message overall” and that markets were “disappointed” that only one MPC member had voted for a rate rise.
On the back of a worse-than-expected first quarter, the BoE nudged growth forecasts back to 1.9 percent, although the forecast had previously been ramped up from 1.4 to 2.0 percent in February.
The MPC expects growth to remain at current rates for the rest of the year, blaming the slowdown on consumer-facing sectors, partly reflecting the effect of sterling’s depreciation on spending.
However, the committee believes that consumption growth will recover later in the year.
“The pound’s fall was also exacerbated by the bank’s assessment about household consumption,” said Razaqzada.
“However everything else was rather positive, with the BoE predicting real incomes to pick up and said first-quarter GDP growth was likely to be revised up.”