Bank of England maintains policy rate

The outlook for the interest rate path in the United Kingdom after May Inflation Report from the Bank of England sees even lower than 90 percent chance for the bank to move in November.

That was in line with forecasts from economists polled by Reuters in the past week.

Investors responded to the announcement by slightly pushing back their expectations of when the BoE was likely to raise rates for only the second time since the global financial crisis.

Sterling fell on the news and was trading lower by 0.2% against the USA dollar at 1.352.

"Rate-setters have kicked the interest rate can down the road once more", Tom Stevenson, investment director for Personal Investing at Fidelity International said.

But late last month, data started to raise doubts.

With the United Kingdom inflation decelerating toward the target more quickly than expected in February and the GDP growth slowing down sharply at the beginning of this year, it was no surprise from the Bank of England to keep the Bank rate at the unchanged level of 0.50 percent in May. For now, most policymakers wanted to wait to be sure that the weakness passes quickly. This potentially leaves the door open for a rate rise in August, the next time the BoE updates its economic forecasts.

The Bank has described recent disappointing economic data as a "temporary soft patch", implying rates will rise in the fullness of time (with interest rates near an all time low, this is one of the safest of bets and only a question of timing).

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Mr Carney was Bullish about the economy, suggesting that the: "underlying pace of growth remains more resilient than the headline data suggests".

Inflation was seen dropping to 2.1 percent 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.

Lower-than-expected economic growth in the first quarter of this year of just 0.1 percent over the quarter are seen by markets and analysts to have weighed on the Bank's decision. Accordingly, the Bank has trimmed its full year growth forecast (issued in February) down from 1.8% to 1.4%.

"It's likely over the course of the next year rates will go up. that's the most likely thing to happen", Mr Carney said in an interview with the BBC, the broadcaster said.

The BoE predicted that consumer price inflation (CPI) would continue to fall, approaching the target figure of 2 percent.

Despite weak growth, the BoE sees the need for rate hikes because it thinks the economy could overheat due to long-term weak productivity and lower immigration driven by Brexit.

"The only people who throw that term at me are in this room", Carney told the news conference.

(Copyright © 2015. All Rights Reserved.)
 
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