Bank of England holds fire on interest rate

BP_Bank

The Bank of England's Monetary Policy Committee as a whole voted 7-2 to keep rates at 0.5% but said "ongoing tightening" was likely to be needed to return inflation of 2.7% back to target.

Though annual inflation in February fell to an annual rate of 2.7 percent, wage growth is picking up and that should support spending and inflation.

"Provided the balance between global tailwinds and Brexit headwinds remains where it is now, supporting United Kingdom growth at or above potential, and provided evidence continues to accumulate that a tight labour market is actually pushing up domestic inflationary pressures, I expect that Bank Rate will need to rise further over the forecast period", Vlieghe said, in a speech, Friday. South African Rand to Pound Exchange Rate Stays Flat on Mixed Retail Sales DataThe Rand to Pound exchange rate (ZAR/GBP) has been close on 22nd March, following the news that South African retail sales levels have improved on the month in January but slowed annually.

The UK's unemployment rate has meanwhile dipped, reverting to the lowest level since 1975, after a brief rise. Another economist backing an interest rate hike at the end of spring was Ed Monk of Fidelity International, who said; 'The message from the Bank of England to borrowers couldn't really be clearer: get ready for higher rates now.

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The bank raised rates for the first time in over a decade in November, reversing an emergency cut made not long after Britain's June 2016 Brexit vote when the economy appeared to be cratering.

Two-year gilt yields, which are most sensitive to the short-term outlook for interest rates, also weakened after the BoE's announcement on Thursday.

'The underlying three-month picture is one of falling sales, mainly due to strong declines across all main sectors in December'.

"The Bank faces a delicate balancing act", said Ben Brettell, senior economist at Hargreaves Lansdown.

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Economists and investors believe the next increase from the BOE could come as soon as May.

In addition, official data this week showing that British wages growth is catching up with overall inflation has cemented expectations of an interest rate hike to 0.75 percent in May. But a pick-up in wage growth points to an erosion of slack in the labour market.

Regarding Brexit, the minutes said that "developments regarding the UK's withdrawal from the European Union - and, in particular, the reaction of households, businesses and asset prices to them - remain the most significant influence on, and source of uncertainty about, the economic outlook".

This could discourage the BoE from continuing to pursue a course of tighter monetary policy, given the significant impact that Brexit-based uncertainty could still have on the strength of the domestic economy.

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"It is very hard to read into these minutes any clues that the MPC is trying to downplay a May rate hike", he said.

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