Finance

Bank of England Governor to Determine Next Move in GBP

Bank of England Governor to Determine Next Move in GBP

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.

The bank said recent reports of sluggish economic activity were enough to convince the majority of MPC members to keep rates on hold.

However in order for inflation to get back to the government's target of two per cent, the MPC stuck to its previous recommendation that three interest rate hikes of 0.25 per cent each would be implemented over the next three years, though these need not be imminent.

A crippling combination of negative economic data, disappointing growth figures and another reversal in tone from BoE Governor Mark Carney has been the driver behind these minimal expectations of a United Kingdom interest rate rise today'.

Just a month ago a rate hike to 0.75% seemed a near certainty, but poor United Kingdom economic data all but killed the chance of rates increasing. In the MPC's central forecast, conditioned on the gently rising path of Bank Rate implied by current market yields, GDP is expected to grow by around 1¾% per year on average over the forecast period.

"All members agree that any future increases in bank rate are likely to be at a gradual pace and to a limited extent".

Whilst the GDP data was hugely disappointing growing just 0.1% quarter on quarter, a good deal of the data and modelled data are linked to unseasonable cold weather supporting the idea that the weak prints were likely to be one off's rather than a more serious structural change in the economy.




They also point to a roughly 40 percent chance of a rate hike this August, which had been the consensus among economists polled by Reuters earlier this week.

Sterling was down 0.5 per cent against euro and 0.2 per cent against the dollar after the news.

However while a hike may longer be on the table this month, the Pound may still be able to mount a recovery if the BoE still appears open to the possibility of hiking rates later in the year.

The pound slipped 0.1 percent to $1.3538 versus the dollar, unchanged from before the data was released. The financial markets are expecting three quarter-point increases over the next three years. The Bank of England on Thursday held its main interest rate at a record low 0.25 percent and slightly downgraded its growth forecast for 2017 as Brexit uncertainties hit consumption.

The minutes from the meeting show the MPC wants to wait and see how the economy performs over the coming months.

Investors now expect the US CPI reading to print at 2.5% year-on-year in April, up from the previous period's score of 2.4%.