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Bank of England votes 7-2 to hold Bank Rate

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10th May 2018
"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 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.

Last month, markets were pricing in a 90% chance of a May rate rise, before data from the ONS showed that GDP growth fell by 0.3 percentage points in the first quarter of 2018.

The MPC said the Bank's projections in its latest inflation report are "broadly similar to those set out in the previous report".

Citing reasons for holding Bank Rate, the MPC noted that GDP growth fell to 0.1% in Q1 and that economic activity is "little changed".

CPI inflation also fell to 2.5% in March, lower than expected at the time of the February Report.

Frances Haque, Santander's UK 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.

"Given previous remarks from the MPC on the timing and the path of future rate hikes, the question now remains as to when the Committee will look to increase rates in 2018, assuming that growth picks up again in the coming months.

"As Governor Carney stated in his remarks in an interview in April, the MPC is, “conscious that there are other meetings over the course of this year” and although the consensus view has been that a hike would come with an inflation report, this does not have to be the case. However what it will depend on is the degree to which the economy recovers from the Q1 dip and how it compares to the Bank of England’s forecasts over the rest of the year.”

Alex Brandreth, deputy CIO at Brown Shipley, said: “While interest rates remain unchanged, it does look like policy direction is going to change in the near future and we believe a period of interest rate hikes lies ahead for the UK. The current backdrop of global growth is the most synchronised it has been for almost ten years and the subsequent spill over from this will inevitably affect the UK economy.

“Those looking for interest rate movements should point their gaze to August and November as these meetings are accompanied by the quarterly inflation report. November seems a particularly sensible month to move as we’ll have found out the decision on the UK’s divorce settlement from the European Union by October and the Bank can make any decisions with this in mind.

“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. With rates still rooted at emergency levels, this is one of the challenges faced by the Bank and how it chooses to deal with this will be key to the success of the UK economy in coming years.”

Tom Stevenson, investment director for personal investing at Fidelity International, added: “Mark Carney really is the ‘unreliable boyfriend’. Leaving the base rate at 0.5% - what was once thought of as an emergency rate - is another big U-turn for the Bank of England governor.

“Until a few weeks ago, a further quarter point rate hike to 0.75% looked almost guaranteed. But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady’s increasingly unhelpful forward guidance. The Bank of England has marched investors up to the top of the hill only to march them back down again.

“With the latest Inflation Report showing pricing pressures tailing off - inflation is expected to be just 2.1% this time next year and to hit the 2.0% target by 2020 - rate-setters have kicked the interest rate can down the road once more. This may be prudent but it risks the Bank being short of firepower come the next downturn.

“If the forecasts are right then expect interest rates to remain lower for longer as UK growth lags the rest of the world, inflation subsides and Brexit clouds remain. This is good news for borrowers but piles yet more misery on savers.

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