Bank of England keeps rates at 0.75 per cent

May 05, 2019, 01:18
Bank of England keeps rates at 0.75 per cent

Otherwise, expect the same old message that any rate changes will depend on the Brexit outcome and that the central bank's main scenario is still for a smooth Brexit to take place.

The BoE upgraded its forecast for growth in the world's fifth-largest economy to 1.5 per cent, up from the decade-low 1.2 per cent it predicted in February, largely reflecting better global economic prospects. However, it has also expressed caution over how Brexit uncertainties continue to hold the economy back for now.

Bank of England policy-makers said today (May 2) that Brexit has driven a wedge between optimistic households and pessimistic businesses, adding to the complexity of setting monetary policy.

Ben Broadbent, a deputy governor at the Bank of England, has attempted to jolt the markets out of their expecation that borrowing rates will not rise very much by saying one interest rate rise a year over the next three year would not be "particularly dramatic".

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"There are insufficient hikes in the current market curve to be consistent with our remit", he told reporters, referring to interest rate expectations embedded in financial market prices.

The BOE continues to stand out as a leading central bank that is committed to lifting its key interest rate, although a move this year is regarded by investors as increasingly unlikely given the lack of clarity about Brexit.

"It now looks increasingly unlikely that we will see a rate rise this year". Britain's departure from the European Union, lengthy due for March 29, was delayed final month till October 31, except parliament, approves a deal sooner.

However, the BOE expects that the United Kingdom growth surge will prove to be short-lived as the impact from stock building eases, with the economy settling back into its previous pattern in the three months through June.

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This removes the immediate threat of a disruptive, no-deal Brexit which hung over the BoE at its final assembly in March, however, extends an interval of financial uncertainty.

The Bank increased gross domestic product (GDP) growth outlook to 1.6% in 2020, 2.1% for 2021 which is up from 1.5% and 1.9% previously.

The Committee says the subdued pace reflects the impact of the slowdown in global growth and ongoing Brexit uncertainties. According to the Bank of England, two thirds of firms said they were as prepared as possible for a "no-deal" Brexit, a scenario that they on average think would cut 3.5% from their output.

The Bank's rates announcement comes after the Treasury announced last week it had kicked off the hunt to find a replacement for Mr Carney ahead of his departure next January.

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