The Bank of England kept interest rates on hold after a first-quarter slump and said inflation would slow faster than previously expected.
The Monetary Policy Committee voted 7 to 0.5 percent, as predicted by everyone but three out of 54 economists in a Bloomberg poll. While Ian McCafferty and Michael Saunders reiterated their support for an immediate surge, investors moved away from a rate hike this year. The pound fell.
The ruling concludes a rollercoaster ride for investors who anticipated a rise in economic growth and unexpectedly low inflation until a few weeks ago. While the BOE maintains the prospect of a tighter policy, its message suggests a gentle pace.
The pound fell after the decision and erased earlier gains. Money markets are now showing the likelihood of an increase in borrowing costs to only about 50 percent in August and an increase by the end of the year – previously fully priced in – to about 85 percent.
The pound fell 0.3 percent to $ 1,3505 at 12:15 in London, after rising by as much as 0.5 percent.
When they announced their decision to stretch this month, the majority of MPC noted the recent weak numbers. They said that "the cost of waiting for additional information is likely to be modest as only a limited streamlining is required over the forecast period."
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"With the return of inflation in two years The committee believes that time is on its side, and when growth picks up again, as we expect in the second quarter, the next rate hike is likely to occur in August. "
New forecasts by the central bank show that inflation will weaken more and fall to the two percent target in two years. But it was said that this was partly because the devaluation of the pound since the Brexit vote was faster. By the beginning of 2020, there is still a small surplus in demand in the economy.
The inflation report also showed that after the first increase in a decade, about a quarter of a percentage point is needed per year to bring inflation back to its destination November
"Continued tightening of monetary policy over the forecast period would be appropriate to bring inflation on a conventional horizon back to its destination, "BOE said. It reiterated its well-worn refrain that future increases will come "at a gradual pace and to a limited extent."
The BOE is not the only central bank to shake off the easy money of the last decade on the exit ramp. Even if the US Federal Reserve adheres to its plan to gradually raise interest rates. The European Central Bank may now wait until after June to outline its next steps, while the Bank of Japan has recently downplayed when it reaches its 2% inflation target. Sweden's Riksbank and the Bank of Canada have also revised their tightening expectations.
In the updated forecasts, the UK central bank sees growth of 1.4 percent this year, up from 1.8 percent in February. But it is all down to the slump in the first quarter, which it estimates will be revised from the original estimate of 0.1 percent to 0.3 percent. The Bank's forecasts for 2019 and 2020 remained unchanged at 1.7 percent.
The MPC's two-party policies in favor of a tighter policy have given more weight to the polls, suggesting that the slowdown is temporary and signs that domestic inflationary pressures are on the rise.
in the labor market, where unemployment is the lowest since the 1970s and wage growth is increasing, confirming their assessment that the slack has largely been used up.
The central bank has reiterated that the economy is a little too hot for its potential Negotiations to leave the European Union restrict the supply side. With the Bank's planned divestment in March 2019, BOE said coping with the effects of Brexit remains the biggest challenge for course setters
– With support from Harumi Ichikura