Published: Fri, May 11, 2018
Economy | By

Interest rates held at 0.5%

Interest rates held at 0.5%

The preliminary estimate of GDP growth in the first quarter was 0.1%, 0.3 percentage points lower than expected in February.

The decision comes despite the Bank's governor, Mark Carney, having earlier signalled that a rate rise was incoming soon.

"They expect us not to be on some pre-set course".

On growth, the BoE said "very little spare capacity remains in the economy", which grew only 0.1% in the first quarter, down from 0.4% in the fourth quarter of 2017, hampered by poor weather. The Bank of England has marched investors up to the top of the hill, only to march them back down again.

'Only one month ago, the markets were predicting a more than 90% probability of a United Kingdom interest rate increase this month. Now it's just 10 percent or so.

While the bank appears open to a rate hike in the coming months, it reiterated that this would be reliant upon economic data moving broadly in line with its expectations. "The only people who throw that term at me are in this room", Carney told the news conference. While modest by historical standards, the projected pace of GDP growth over the forecast is nonetheless slightly faster than the diminished rate of supply growth, which averages around 1½% per year.


May Inflation report is a dovish turn from the Bank of England that tried to downplay the erratic effect of the economic slowdown at the beginning of this year, but still saying that inflation drivers will be increasingly on domestic side moving away from the effect of past Sterling depreciation. That matters as the Bank of England's primary mission is get inflation close to 2 percent.

Across April it was revealed that United Kingdom wages rose 2.8 percent, unemployment dropped to its lowest for 43 years, manufacturing orders hit their highest since 1988, exports rose a massive 10.4 percent, and Sterling hit a post-Brexit high of $1.4377 - up six percent on the year.

Meanwhile, while the US Dollar (USD) initially rose against the Pound (GBP) in the wake of the BoE's policy meeting, the USD exchange rate was forced to relinquish these gains following the release of the latest US inflation figures.

However, as with everything related to the British economy, much depends on the Brexit discussions.

"While the storms of February and March have given way to sunnier skies, the economic outlook for the United Kingdom remains clouded by Brexit uncertainties", Carney said.

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