Sterling falls after BoE holds rates, slashes growth forecasts

Mark Carney

So what is now projected by the bank of England is a "gently rising path for Bank Rate over the next three years".

"If the forecasts are right then expect interest rates to remain lower for longer as United Kingdom growth lags the rest of the world, inflation subsides and Brexit clouds remain". If officials unanimously maintain borrowing costs at 0.5 percent, a "dovish hold", the pound could drop toward $1.3350, Patel said.

Speaking at the press conference upon the release of the report, governor of the BoE Mark Carney added: "The underlying pace of growth remains more resilient than headline data suggests".

"We think that momentum in the economy is going to reassert", Carney said.

In line with what has become a new standard within the Monetary Policy Committee (MPC), there are seven doves voting in favor of the decision and two arch-hawks, Ian McCafferty and Michael Saunders voting in favor of 25 basis points rate hike in May.

Commenting on the MPC's decision, Fabrice Montagne and Sreekala Kochugovindan at Barclays Research told clients: "While a confident BoE in normal times would likely have happily looked through a growth soft patch and hiked, increasing doubts regarding the outlook amid high levels of uncertainty led the MPC to forgo a rate hike in May and reshape the timing of its tightening cycle".

A similar market measure, short sterling interest rate futures FSSZ8 priced in the lowest chance of a rate rise this year since January, after one of the biggest reductions in expectations this year.

"It looks like the 2018 rate hike has been delayed not cancelled", Fitch Ratings chief economist Brian Coulton said.


Yes, they will rise at some point.

Minutes of the meeting showed that most MPC members now wanted to wait to see "how the data unfolded" over the coming months.

While they expect it to recover from a weak start to the year, there is a risk that the slowdown could be more persistent. "Thou shalt not imperil economic growth" suddenly seems much more important than worrying about reining in inflation", said the FEXCO dealer.

However, it said growth is "likely to be revised up a little over time" with the labour market remaining "robust".

But the bank's caution is not expected to last indefinitely.

But in its most recent Quarterly Inflation Report, the Bank blames above-target inflation on higher prices of imported goods caused by a weaker pound. In the year to March, annual consumer price inflation was 2.5 percent, well below the bank's projection of nearly 3 percent. The Bank of England has marched investors up to the top of the hill only to march them back down again.

It also forecast that the unemployment rate would fall further, to 4% by 2020, the Bank's lowest forecast since the financial crisis.

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