March 23, 2018

Pound falls as Bank holds rates and cuts forecasts

06 August 2017, 01:34 | Lionel James

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The Bank of England's Monetary Policy Committee (MPC) has held the base rate at its current level of 0.25%.

The signal from London comes as accelerating growth in the 19-nation eurozone cements expectations that the European Central Bank will begin to phase out its stimulus measures next year as the region emerges from the shadow of the past decade's financial crisis.

British inflation is being supported by a Brexit-fuelled slump in the pound pushing up import costs - although the annual rate managed a slowdown to 2.6 percent in June from a near four-year high of 2.9 percent in May.

The assumption of a smooth Brexit will be tested.

Investors will also be paying close attention to any potential shifts in tone from the bank's meeting minutes or inflation report, which are due to be published alongside the bank's policy decision.

The uncertainties are also affecting Bank policy, according to Yael Selfin, chief economist at accountant KPMG.

Meanwhile the Euro struggled to advance ahead of the Bank of England's rate decision this morning as data appeared to suggest that the Eurozone economy is beginning to slow in the third quarter.

THE BANK of England has revised down growth forecasts for the United Kingdom as it held interest rates yet again this month.

"The UK economy is faltering and consumer purses are under pressure, so it's no surprise the BoE has decided not to upset the applecart by raising interest rates", Hargreaves Lansdown senior analyst, Laith Khalaf, said. The Monetary Policy Committee was split with a 6-2 vote in its decision to keep the bank rate on hold.

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GBP/USD remains on the lower ground, around 1.3150.

Mr Alan Clarke, a rate strategist with Scotiabank, said: "The door is still open to a hike, but it does not look imminent".

The Bank of England chose to keep rates unchanged at all-time lows as it completed its two-day meeting today.

The BOE has revised down its 2017 growth projections, to 1.7 percent from 1.9 percent in May, saying the United Kingdom economy will remain "sluggish".

The Bank also downgraded its growth forecasts for the United Kingdom, from 1.9% to 1.7% for this year, and said growth would then slow to 1.6% in 2018, down from its previous 1.7% projection.

"It has also downgraded its growth forecasts for 2017, on the back of a pretty disappointing first half of the year".

With low unemployment, wages are expected to rise.

The central bank warned that the slump in wage growth is likely to have a negative impact in national consumption over the coming months, with the accompanying uncertainty of Brexit likely to cause GDP to remain subdued.

Currently, inflation is running at 2.6%, while wage growth is just above 2%, meaning that regular Brits are now bringing in less in wages than prices are growing, effectively lowering their real incomes.

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