Published: Sun, May 05, 2019
Markets | By Otis Pena

Sterling stands tall before BoE rates decision

Sterling stands tall before BoE rates decision

The vote was 9-0 to hold at 0.75 per cent and to keep the asset purchase program unchanged. Nonetheless, the central financial institution expects growth to be sluggish to 0.2% in the present quarter.

Sterling has traded in a narrow range of 1.28-1.30 dollar since Britain last month pushed its scheduled departure from the European Union back from March until October 31.

Business surveys have for months been pointing to an accumulation of stocks by British firms anxious that their supply chains may be interrupted by Brexit, which had been expected to take place on March 29, leaving them unable to deliver for their customers.

The Bank's rates announcement comes after the Treasury announced last week it had kicked off the hunt to find a replacement for Bank Governor Mark Carney.

But that activity has been much less evident in official data, something the BOE expects to change when economic growth figures for the first three months of the year are released on May 10.

Before today's decision, financial markets saw only a 35% chance of a rise this year.

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"The Committee continues to judge that an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate", the Bank of England said, echoing earlier language.

Broadbent said that six months ago, markets had expected one rate rise a year.

In a news conference, Mr Carney said: "If something broadly like this forecast comes to will require interest rate increases over that period and it will require more, and more frequent interest rate increases, than the market now expects". Investment will probably fall for a few more quarters, but the bank raised its forecast for investment growth through 2021.

"GDP is expected to have grown by 0.5 percent in the first quarter, in part a reflection of a larger-than-expected boost from companies in the United Kingdom and the European Union building stocks ahead of recent Brexit deadlines", the bank said.

Minutes to the central bank's meeting released Thursday showed some concern about the level of uncertainty.

It also cut its forecast for unemployment sharply to 3.7% in two years' time, down from 4.1% in February, reflecting businesses' preference to hire staff, rather than make long-term investments, at a time of economic uncertainty.

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