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Home / Business / BOE keeps the interest rate on hold as inflation cools faster

BOE keeps the interest rate on hold as inflation cools faster



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."

What our economists say

"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. "
– Dan Hanson, Bloomberg Economics. Click to view his U.K. REACTION

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."


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