BoE keeps rates on hold for now

Lloyd Doyle
June 24, 2018

Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said of this week's six-three vote to hold rates: "An unexpected development saw a narrower six-three vote, from seven-two, in favour of unchanged interest rates.With interest rates down at 0.5%, the Bank of England would clearly like to gradually normalise monetary policy given that it is essentially an emergency low rate".

It is against this backdrop that today's hold needs to be seen as the fall in the pound is likely to make it much more hard for the Bank of England to meet its newly revised inflation target, particularly with the United States dollar being so strong and the Federal Reserve being on an aggressive tightening cycle, with the potential for another 2 USA rate rises this year.

The size of the bank's asset purchase programme was held at £435bn.

Vikki Jefferies, proposition director at PRIMIS and PTFS, commented: "Speculation around a Base Rate increase has dominated financial pages since the start of the year".

The minutes repeated that "any future increases in Bank Rate were likely to be at a gradual pace and to a limited extent".

June 2017 was the last time three people voted against the overall view and rates then rose the following November.

The MPC said its "best collective judgement remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target".

"A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness in Q1, in part related to the adverse weather", the Bank said.

Recent figures showing that wage growth has stalled, as well as a mixed performance so far in the second quarter, combined with fears over resurgent inflation, have all left the Bank with a hard decision.

If the minutes and Mr Carney make no reference to a potential interest rate hike in the near-future, however, the current pound U.S. dollar exchange rate losses could extend. "But on our interest-rate forecast, we wouldn't even get the bank rate up to 1.5 percent before 2020".

Policymakers may have been concerned by a survey this week which showed most of the public no longer expected rates to rise at all this year.

The Bank of England may lay some groundwork on Thursday for an August interest rate rise, if it judges the economy is now turning a corner after an unusually weak start to the year.

"When making a decision on a mortgage, it's important to consider the true cost of a deal, accounting for all fees and charges, rather than going on the headline rate alone".

Other reports by Iphone Fresh

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