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Will the Bank of England raise interest rates today?

10 Mai 2018

As expected, the Bank of England (BoE) chose to keep interest rates on hold at 0.5%.

New Zealand central bank Governor Adrian Orr said in an interview on Thursday that the bank wants to see wages rise and start to drive up prices before it increases interest rates from a record low.

Investors responded to the announcement by slightly pushing back their expectations of when the BoE was likely to raise rates for only the second time since the global financial crisis.

Carney defended himself against that charge, arguing that when the situation changes, the bank's policy response has to change. "I am sure there will be some differences of view but it is a view we will take in early May, conscious that there are other meetings over the course of this year".

Analysts, who had estimated the USA could impose a fine of up to $12 billion, said the bank could reinstate a dividend.

Investors appear unclear as to what's likely to happen next. With the split scheduled for March 2019, the bank said managing the implications of Brexit remains the main challenge for rate setters.

Despite this, hawks Ian McCafferty and Michael Saunders again said that a strong labour market and rising pay justified an immediate hike. An interest rate hike would be consistent with policy, but as the Bank of England is expected to change its forecast to lower growth.

First, official figures showed that the British economy barely grew in the first three months of the year. Leaving the base rate at 0.5% - what was once thought of as an emergency rate - is another big U-turn for the Bank of England governor. It particularly affected construction, Carney said.

The Bank cut its growth forecast for the year to 1.4%, down from the forecast of 1.8% made in February.

The bank said recent reports of sluggish economic activity were enough to convince the majority of MPC members to keep rates on hold.

"With inflation falling fast, and the Bank predicting it could soon be falling faster, the inflationary imperative for a rate rise has all but gone", added Lamb.

Alongside the decisions, the Bank of England also released its quarterly Inflation Report, providing an update on its economic forecasts, predicting that the United Kingdom economy will grow at average of around 1.75% over the next handful of years.

The unemployment rate forecast was cut to 4.1% in Q2 and then 4.0% in the next two years. There's still a lot of uncertainty over Britain's post-Brexit relationship with the EU.

"We therefore continue to forecast the Bank of England to make their move to 0.75% in August, but due to the reinstatement of data dependency into its policy reaction function, we don't expect the ride to this hike to be smooth".

Will the Bank of England raise interest rates today?