UK Bank of England meeting: Rates on hold amid mixed signals on the economyContributors Karen Ward, Global Markets Insights Strategy Team
- The Bank of England (BoE) held its base rate of interest unchanged at 0.5% at its meeting today.
- Progress on the Brexit negotiations in the Autumn could see a swifter pace of interest rate normalisation in 2019.
The vote to keep interest rates unchanged at today’s meeting was not unanimous; two members of the nine-strong Committee wanted to raise rates today but the remaining seven voted for rates unchanged.
Just a few weeks ago, we - and the market - had been expecting a 25 basis point increase in the Bank Rate at this meeting. But a string of disappointing data in recent weeks has thrown the Monetary Policy Committee (MPC) off this course. Although the labour market still looks incredibly strong, with unemployment at multi-decade lows and wage growth picking up, Q1 GDP was weak - growing just 0.1% over the quarter. Data on consumer lending, retail spending and the housing market have also been soft.
The Governor indicated in the press conference that the BoE’s assessment is that much of this weakness is temporary and can be attributed to the weather. It expects some rebound in Q2 with quarterly growth of 0.4%. Nevertheless this weakness early in the year does reduce their estimate of GDP growth over the year as a whole to 1.4%. Other revisions, to growth and inflation were modest (see Exhibit 1).
EXHIBIT 1: 2018 growth nudged down but otherwise forecasts largely unchanged
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