Bank of England keeps rates unchanged

Arturo Kim
May 12, 2018

The base rate is the "rate of interest [paid] on reserves held by commercial banks at the Bank of England".

And while Brexit-fuelled inflation has fallen sharper than expected in recent months, the Bank said rate hikes would still be needed over the next three years, with cost pressures building in the economy.

The BoE trimmed its inflation forecasts and cut its growth outlook, but Governor Mark Carney said he expected the economy to recover speed, despite signs of more cautious consumers.

"It's likely over the course of the next year rates will go up, likely by the end of the year. that's the most likely thing to happen", Mr Carney said in an interview with the BBC. "As Brexit looms on the horizon the United Kingdom economy is growing slower than global peers, with no acceleration in sight".

Practically, this largely involves the Bank adjusting interest rates to try and keep inflation at, or as close to, a target of 2%.

In a Reuters poll published on Wednesday, all but three of 62 economists polled between May 3 and 8 expected no change in rates.

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However, the BoE may not be comfortable with this scaling-back of interest rate expectations, which has the potential to fuel inflation through a weaker pound and cheaper credit.

"Another poor decision. keeping interest rates at 0.5 pct despite nine years of economic recovery, a buoyant global economy, above target inflation and the lowest unemployment rate for 43 years", said Andrew Sentance, a former Bank of England policymaker, on Twitter.

Confirming a glum first quarter for the economy, industrial output barely rose in March, data showed.

The Bank remains fairly confident that this patch of reduced growth will be just that, a "temporary soft patch", and that more prolonged improvement should be on the horizon. CPI inflation is now 2.5 percent, according to the latest figures for March. Their forecasts for the year were reduced principally to take into account the lower than expected performance that has already been and gone - growth predictions for subsequent years remain unchanged.

"Following all the above, the Bloomberg implied odds of a rate hike in the August meeting fell 12ppt to 42%".

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