Bank of England keeps rates at record low as economy slows

The bank’s governor, Mark Carney, has said volatility and uncertainty would govern the process of Brexit, even though negotiations have yet to begin. The reports will be followed by a press conference with Governor Mark Carney.

That’s down to inflation’s surge in recent months, linked to the plummeting value of the pound since Britain voted to leave the European Union last summer.

Despite first-quarter gross domestic product (GDP) coming in at 0.3 percent and undershooting the BOE’s February estimate that the figure would hit 0.5 percent, the central bank’s forecasters have only reduced the outlook for 2017 growth to 1.9 percent from 2.0 percent.

For 2018, the BoE revised its growth forecast slightly upward from 1.6% to 1.7%. Last year Britain’s economy grew 1.8 percent.

However, macroeconomic forecasts for both inflation, and wider growth are both likely to see significant changes, with numerous economists speculating that the Old Lady of Threadneedle Street could push up its inflation forecast from a peak of 2.8% to somewhere around 3%.

But there is one huge caveat: the forecast presented by the Bank of England on Thursday depends on Britain’s “smooth” exit from the European Union – one that includes a future agreement on trade, or a transition period.

Average citizens are starting to feel the pinch as inflation is now outpacing wage growth, meaning that Brits are essentially earning less than prices are rising, squeezing their ability to spend on discretionary items.

“This is going to be a more challenging time for British households”, Carney told a news conference, highlighting that inflation would peak at almost 3 percent this year.

Economic growth slowed sharply during the first quarter, to a 0.3% rate.

“That means the next government must truly get behind a new Industrial Strategy to drive growth and job creation across the United Kingdom and also deliver a new migration system that ensures firms have access to the skills and labour they need post-Brexit”.

While the Bank said that it may need to raise interest rates before the late 2019 date it said was indicated by market pricing, that timeline was nine months later than that in its February forecasts.

These market assumptions were based on average prices in the two weeks to May 3. Since then, markets have moved to price in around two rate rises.

One month before a British general election, BoE policymakers voted by 7-1 in favour of keeping the rate on hold and trimmed its 2017 growth forecast to 1.9 percent from 2.0 percent, the central bank said in a statement.

The BoE now has just one female MPC member, Kristin Forbes, who will leave her role in the summer.

Dealers attributed sterling’s dip to some expectations more policymakers would vote for a rate rise.

The improvement in global conditions, as well as the recent rebound in the value of sterling, will lead to a gradual pick-up in wages and therefore spending after a short-term dip, the Bank’s forecasts showed. These projections depend importantly on three main judgements: that the lower level of sterling continues to boost consumer prices broadly as projected, and without adverse consequences for inflation expectations further ahead; that regular pay growth remains modest in the near term but picks up significantly over the forecast period; and that more subdued household spending growth is largely balanced by a pickup in other components of demand.