Bank of England keeps rates unchanged

Geneva Stokes
May 12, 2018

In the weeks leading up to the actual decision, there had been some speculation that the Bank would act to tighten monetary policy on the back of Governor Mark Carney's comments, but it has been odds on for some time that the MPC would delay a rise until (probably) August.

The BoE raised rates for the first time in more than a decade in November, reversing an emergency cut made after June 2016's Brexit vote.

And while Brexit-fuelled inflation has fallen sharper than expected in recent months, the Bank said rate hikes would still be needed over the next three years, with cost pressures building in the economy.

Investors pushed back their bets on when rates would rise, and sterling slid close to a four-month low against the dollar. Financial markets price in a roughly 65 percent chance of a rate rise by then, according to interest rate futures. It is, effectively, the fundamental interest rate on which most commercial interest rates on standard bank accounts and loans are ultimately based (though of course other things like risk will play a part when calculating interest on loans).

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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.

Carney said in February that rates might go up sooner than the BoE had previously suggested, and was asked by a reporter on Thursday about the description of him as an "unreliable boyfriend" - first used by a British lawmaker because of his previous signals about when rates might rise, which misfired.

However, JP Morgan economist Allan Monks said the BoE had sent a "muddled message" about its intentions.

"We think that momentum in the economy is going to reassert", Carney said. Their forecasts for the year were reduced principally to take into account the lower than expected performance that has already been and gone - growth predictions for subsequent years remain unchanged. Inflation has been falling a little faster than the Bank expected it to, and it is now expected to drop down to the target 2% within the next couple of years, regardless of any change in interest rates.

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