Monday, 21 May 2018
Latest news
Main » Sterling falls after BoE holds rates, slashes growth forecasts

Sterling falls after BoE holds rates, slashes growth forecasts

11 May 2018

The Bank of England slashed its economic growth forecast for 2018 today as its policymakers kept interest rates on hold at 0.5 per cent.

In the updated forecasts, the United Kingdom central bank sees growth at 1.4 percent this year, down from 1.8 percent in February.

A lack of progress on Brexit and data from the British Retail Consortium showing the sharpest fall since the BRC started collecting retail sales data 23 years ago have added to the economic pessimism.Investors and traders will therefore be listening out for any hints by Carney that a rate rise in August is on the cards; now market pricing suggests the chances of an increase are around 57%. Sterling fell to a day's low of $1.352, reversing earlier gains, and the yield on two-year British government bonds, which are sensitive to monetary policy expectations, fell modestly. "We read that as the BOE saying neutral, real rates are quite negative and not far above current levels", concludes George Pearkes, macro strategist at Bespoke Investment Group in Harrison, New York.

Bank hints at future rate hikes, saying that it is ready to tighten policy going forward, if the economy grows as forecast.

More news: Indian refiners in no rush to seek alternatives to Iranian oil

Britain's blue chip FTSE 100 index cut losses to trade flat in percentage terms after the BOE kept rates on hold. The manufacturing production is expected to have shrunk by 0.2% this month. It said this would come in the form of two 0.25% rate hikes, believed to be in May and November.

The Bank's annual growth target averaging 1.75% over the next three years could see a similar trim. If this rebounds as they expect then it is likely we could see a rate rise at any one of the upcoming meetings including June. "Without inflation, absolutely no need to hike rates", said Neil Jones, head of FX hedge fund sales at Mizuho.

The BoE on Thursday cut its forecasts for inflation and for growth, especially in 2018, reflecting the weak first-quarter figures, which the central bank said would probably be revised up.

"There is also a little three-month wiggle room for those who like a fixed rate comfort blanket".

More news: Raptors aim to avoid sweep as betting underdogs vs. Cavs

Bank of England Governor Mark Carney told reporters the bank's earlier guidance on tighter policy had been conditioned on February inflation projections but the economy had not fulfilled those conditions.

"With inflation falling fast, and the Bank predicting it could soon be falling faster, the inflationary imperative for a rate rise has all but gone", added Lamb.

More clarity was subsequently provided with regard to Brexit in March, a key issue for the MPC, with Michel Barnier and David Davis announcing both parties had agreed a large part of the transition deal when the United Kingdom leaves the bloc on 29 March 2019.

More news: Top Chinese economic adviser to visit USA next week for trade talks

Sterling falls after BoE holds rates, slashes growth forecasts