Carney Says Modest Rate Hikes Needed Even as Inflation Cools

Property Owners Braced For Interest Rate Hike

To nobody's great surprise, the Monetary Policy Committee of the bank of England has chose to leave interest rates unchanged at 0.5%.

Gross domestic product (GDP) slowed sharply to 0.1%, down from 0.4% in the previous three months, as the impact of the Beast from the East compounded woes in consumer-facing and construction sectors.

On growth, the BoE said "very little spare capacity remains in the economy", which grew only 0.1% in the first quarter, down from 0.4% in the fourth quarter of 2017, hampered by poor weather.

Three months ago, the Bank had been pencilling in growth of 0.4% in the first quarter and 1.8% for 2018 as a whole.

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The Bank of England is set to hold interest rates at 0.5% on Thursday as a sharp slowdown in economic growth is expected to put plans for a rise on the back burner.

In February, Mr Carney dropped what investors saw as firm hints that interest rates would be lifted today, encouraging them to bet on a hike this month. While the subdued first quarter outturn signified that the full-year growth estimates was lowered, unchanged forecasts for 2019 and 2010 meant that the central bank's broader views on the economy were left intact, stated Lloyds Bank.

Carney defended himself against that charge, arguing that when the situation changes, the bank's policy response has to change. Consequently, the Bank is optimistic that the economy will pick up somewhat in the near future (obviously, this will depend if any unseasonably cold "Brexit headwinds" start to blow which might jeopardise the transitional agreement).

Analysts at Deutsche Bank note that the BoE kept rates on hold yesterday as widely expected, but the vote was not unanimous (7-2), with both Saunders and McCafferty dissenting as they did in February. The decisions are made after a vote by each committee member; in the event of a tie, the governor has the casting vote.

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The IR projections implied that the MPC expects to raise rates three times in the next three years by 25 basis points each time.

"The prospect of excess demand over the forecast period has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target".

Frances Haque, Santander's United Kingdom chief economist, commented: "The MPC's decision was widely expected given the disappointing economic data for Q1 2018, with GDP growth being significantly below expectations and inflation surprising to the downside".

"Given the recent weakness in consumer credit and the housing market, there was somewhat greater-than-usual uncertainty about the near-term momentum in consumer spending and the extent to which households would adjust their spending and saving to the past fall in their real incomes", the minutes said.

John McCain Calls on Senate to Reject CIA Director Nominee Haspel
McCain has been home in Arizona battling brain cancer since the end of previous year , and is not expected to return for the vote. Secretary of State Mike Pompeo tweeted favorably of Haspel, "I had the chance to watch Acting CIA Director Gina Haspel testify".

Two MPC members wanted to increase rates this month, citing the strength of labor market, where unemployment is the lowest since the 1970s and wage growth is picking up, fueling domestically generated inflation.

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