Base Rate held at 0.25% but it's not all good news

Saturday, 05 Aug, 2017

The Bank of England kept interest rates at a record low again on Thursday and cut its forecasts for growth and wages as it warned that Brexit was weighing on the economy. The pound's decline continued as Mark Carney, the central bank's Governor, appeared before the press after the decision announcement. Negotiations between the two sides are in their early stages, with differences over immigration and financial obligations threatening Britain's goal of retaining access to the European single market.

Speaking at the Bank, Carney warned activity could slow further if trade becomes more hard after Brexit with reduced access to the customs union and the Single Market.

John Moclair, head of global customer group at Bank of Ireland capital markets, said the euro/sterling exchange rate began the year at around 85p but has crept higher over the past few months and is now trading above 90p. 3 of the BOE members had voted for a rate hike last time and this is one of the major reasons for the confidence in certain parts of the market.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, added: "The Office for Budget Responsibility thinks interest rates will rise to just 1% by 2022, still below the rate of inflation, assuming the Bank of England meets its 2% CPI target".

Her replacement, economics professor Silvana Tenreyro, voted against a rate rise in this session.

In its latest report, the National Institute of Economic and Social Research (NIESR) predicted the Bank would raise rates in the first quarter of next year as the economy starts to recover. A base rate rise this year, whilst not a certainty, is possible.

In the minutes of the meeting the Bank said some tightening of monetary policy would be required to "achieve a sustainable return of inflation to the target" by a greater extent than the market is now predicting.

But as with many things in Britain these days, the spectre of Brexit overshadowed everything.

Mr Broadbent said the Brexit vote had caused inflation to march higher and there had to be a "trade off between stabilising inflation and keeping the economy going".

"As a outcome, the household saving ratio fell from 3.3% to 1.7%, its lowest level since the series began in 1963".

The report is expected to show employment climbed by 183,000 jobs in July, while the unemployment rate is expected to dip to 4.3 percent.

Dovish BoE sends Pound Plummeting - BoE Cuts Growth Forecast to 1.7%.

Inflation fell and is expected to peak around is expected to remain a bit above target.

Members of the Committee also voted in favour of extending a credit facility to British banks from £100 billion to £115 billion, with the Term Funding Scheme (TFS) running until February 2018.