UK rates on hold as weather slows economic growth

The Bank of England backed away from an interest rates rise as it reduced substantially its growth forecast for the UK economy this year.

Counting money
Expectations that the bank would increase the 0.5 per cent base rate have declined in recent weeks after a prolonged spell of wintry weather in February and March resulted in disappointing performances by the manufacturing and construction sectors, with the economy expanding by just 0.1 per cent in the first quarter.

UK interest rates to remain unchanged

The poor weather was also cited by the bank as the main reason for cutting its forecast for GDP growth to 1.4 per cent for 2018. Its previous forecast in February had predicted growth of 1.8 per cent.Seven of the nine members of the bank’s Monetary Policy Committee (MPC) voted to keep interest rates on hold. Immediate reaction on international markets saw the value of sterling fall against both the dollar and euro.But, at a press conference on Thursday afternoon, Mark Carney, the bank’s governor, said the “underlying pace of growth remains more resilient than the headline data suggests”.He added, “While the storms of February and March have given way to sunnier skies, the economic outlook for the UK remains clouded by Brexit uncertainties.
“Despite the welcome agreement on a transition period, the terms on which the UK will trade with the EU and beyond that period remain to be determined. As negotiations progress this year, the medium term outlook will become clearer.”
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Future interest rate rises

On the question of future rate rises, Mr Carney said, “If the situation’s appropriate, we will adjust policy. For households and businesses, they have the general orientation – which we are confirming today – that interest rates are likely to go up by a limited degree and gradual pace.”Chris Williamson, chief business economist at IHS Markit, said the bank’s attitude “leaves expectations alive for rates to rise later in the year”, possibly in August. But he said that, apart from the effects of the weather in Q1, the bank “is also worried that the underlying pace of economic growth may have in fact waned so far this year”.He added, “Survey data suggests that some of this slowdown can be linked to weaker economic growth in continental Europe, but companies are also reporting that domestic demand among households and businesses has continued to be dampened by uncertainty about the economic outlook and higher prices.”Tom Stevenson, investment director of personal investing at Fidelity International, commented, “Mark Carney really is the ‘unreliable boyfriend’. Leaving the base rate at 0.5 per cent – what was once thought of as an emergency rate – is another big U-turn for the Bank of England governor.“Until a few weeks ago, a further quarter point rate hike to 0.75 per cent looked almost guaranteed. But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady’s increasingly unhelpful forward guidance. The Bank of England has marched investors up to the top of the hill only to march them back down again.” For related news and features, visit our Enterprise section. Find out more about our upcoming Relocate AwardsRelocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory 

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