BoE holds rates as 'unreliable boyfriend' returns

Mortgage

Mark Carney, the governor of the Bank of England (BoE) was speaking after officials kept the key interest rate on hold at 0.5% after a first-quarter slump, and said inflation will weaken faster than previously anticipated.

While expectations of a rate hike have fallen rapidly in recent days after a run of weak data and cautious comments from policymakers, the cut in inflation and growth forecasts weighed on currency markets.

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

New forecasts from the central bank showed inflation will slow more sharply, falling to the 2 percent target in two years.

The Bank is expected to cut its 2018 growth forecast in today's accompanying inflation report, down from the 1.8% predicted in its quarterly report in February, while also trimming inflation predictions.

"What matters for the pound is whether Governor Carney is a man with or without conviction over future rate hikes", Patel said. The median forecast is for the yield to rise to 1.8 percent.

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But Threadneedle's Street belief that the economy actually grew more strongly than the 0.1% estimated by the Office for National Statistics will keep alive speculation that a quarter-point increase in borrowing costs is possible when the next inflation report is released in August. The BOE is anxious that weak productivity growth and subdued investment since the 2016 Brexit vote make it hard for the economy to meet nearly any strengthening of demand without overheating.

"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", Brandreth said. Inflation was seen dropping to 2.1 per cent in a year's time, and returning to target a year later - sooner than previously thought - but only if interest rates rose by 25 basis points about three times over the next three years, as markets expect. "It looks like Bank of England tightening is done before it really got started".

The Guardian quoted Tom Stevenson, investment director for Personal Investing at Fidelity International, as pointing out that the BoE had pulled another U-turn, having hinted in February that rates would rise today.

'Survey data suggests that some of this slowdown can be linked to weaker economic growth in continental Europe, but companies are also reporting that domestic demand among households and businesses has continued to be dampened by uncertainty about the economic outlook and higher prices'. The Bank of England has marched investors up to the top of the hill only to march them back down again.

The decision will come after a steep downturn for GBPUSD that has been followed by a short period of relative stability.

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