Bank of England hints at slow rate hikes as growth outlook raised

Oscar PerryMay 05, 2019

The Bank of England expects growth rate to come back down to 0.2 percent in Q2.

GBP price up on hawkish Bank of England The Bank of England kept all its monetary policy settings unchanged Thursday, with Bank Rate left at 0.75% and its buying of United Kingdom government and corporate bonds at their previous levels.

During the first quarter of 2019 the economy probably grew by 0.5 per cent due to businesses building up stocks ahead of Brexit, the BoE said - a faster rate than the 0.2 per cent growth it forecast in February.

The central bank will announce no change to the bank rate and leave other monetary policy considerations unchanged later but the inflation report may hold a few surprises for markets to focus on.

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".

"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.

Carney said this appeared primarily to reflect spillover from a softening in policy intentions by the Fed and European Central Bank, rather than a change in the fundamentals of Britain's economy.

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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.

Agents reported that Brexit is pushing down already weak business investment intentions.

It also increased its gross domestic product (GDP) growth outlook to 1.6% in 2020 and 2.1% in 2021, up from 1.5% and 1.9% previously.

GDP is predicted to have grown by 0.5% in 2019 Q1, but is expected to slow to around 0.2% in Q2.

"That subdued pace reflected the impact of the slowdown in global growth and ongoing Brexit uncertainties".

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A majority of exporters have told the Bank's network of agents they are as prepared for a no-deal Brexit as they can be but they expect leaving the European Union without a deal would lead to a loss of trade and a financial hit to their business. "We expect the path of interest rates, as and when they do go up, that rise to be limited and gradual".

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