Super Thursday: Bank of England keep rates on hold at 0.25pc

Saul Bowman
August 4, 2017

The timing of a rate hike has been complicated by the weakness in growth in the British economy. But more recently, as the consequences of sterling's fall have shown up in the shops and squeezed their real incomes, they have cut back on spending, slowing the economy.

But James Smith, economist at ING, said a rate rise was still unlikely this year.

Bank governor Mark Carney said: "We're going through a sluggish period in the economy".

A protester holds up Bank of England Governor Mark Carney mask outside the bank as it staff begins a three day strike over pay, in the City of London, Britain, August 1, 2017. The combination of high rates of profitability, especially in the export sector, the low cost of capital and limited spare capacity supports investment by United Kingdom firms over the forecast period, offsetting the effect of continued uncertainties around Brexit.

Price pressures have risen since the vote to leave the European Union a year ago knocked the pound sharply lower, thereby increasing the cost of imports to the UK.

And he added that if the Brexit process does not go smoothly, it could pose further challenges to the economic picture.

The Bank of England Monetary Policy Committee (MPC) today voted to keep the Bank Base rate at 0.25%.

When they last met in June, rate-setters on Threadneedle Street voted by a narrow 5-3 margin to keep interest rates at 0.25 percent.

Since then one of the dissenters, Kristin Forbes, has left the central bank. Ian McCafferty and Michael Saunders continued to support an interest rate rise.

Sterling hit a 10 month high yesterday, as investors anticipate this week's Bank of England "Super Thursday" for a steer on whether record-low interest rates could soon be lifted for the first time in more than a decade.


The cuts contrast with strong economic growth elsewhere around the world, which is enjoying its biggest boom in five years.

"Brexit even overshadows consumer borrowing, which the Bank has lately sounded anxious about".

Additionally, the MPC was unanimous at keeping the total stock of government bonds to be purchased as part of its stimulus program at 435 billion pounds and the respective number for corporate bonds at 10bn pounds.

Policymakers agreed however to increase cheap lending for retail banks before the expiry of the Term Funding Scheme next February.

The split on the MPC over what to do with rates highlights the challenge facing the central bank.

Meanwhile the Pound may claw back some of its losses tomorrow as the United Kingdom releases its latest new vehicle sales data, with markets expecting sales to have rebounded after contracting by 4.8% in June.

US jobless claims fell by 5,000 in the latest week, coming in near a 44-year low (http://www.marketwatch.com/story/us-jobless-claims-fall-by-5000-to-240000-2017-08-03).

The Bank slashed its economic growth forecasts for 2017 to 1.7% from 1.9% and lowered next year's estimate to 1.6% from 1.7%.

The MPC says it expects inflation to rise in the next few months, peaking at around 3% in October. Given the latest data, today's vote and the minutes, inflation report and press conference that accompanies it should shed further light on the BoEs expectations for interest rates.

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