Fundamental Comment

BOE holds interest rates amid Brexit uncertainty

BOE holds interest rates

The Bank of England has voted unanimously to leave UK interest rates unchanged at 0.75 percent, moving in line with market forecasts.

Also, policymakers opted to hold their asset purchase facility at 435 billion pounds, with a unanimous 0-0-9 vote.

All the nine monetary policy committee members saw that it was too early to raise borrowing cost, amidst the undergoing Brexit uncertainty.

The BOE repeated its guidance that any interest rate hike would be “at a gradual pace and to a limited extent.”

“All members judged at this meeting that the current stance of monetary policy was appropriate,” according to BOE minutes.

BOE Growth and Inflation Outlook

The BOE raised its U.K. growth forecasts to 1.5 percent this year, up from a previous forecast of 1.2 percent.

"The underlying path of GDP growth appears to be slightly stronger than previously anticipated, but marginally below potential," the bank said after Britain has avoided the immediate risk of a no-deal Brexit.  

“GDP is expected to have grown by 0.5 percent in 2019 Q1. However, quarterly growth is expected to slow to around 0.2 percent in Q2, reflecting the impact of the slowdown in global growth and ongoing Brexit uncertainties” the BOE statement said.

Also, the bank cut its forecast for unemployment sharply to 3.5 percent in two years' time, down from 4.1 percent in February.

As for inflation, the central bank expects the rate - currently 1.9 percent - to surpass its 2 percent goal in two- and three-years’ time, which is similar to February’s outlook.

As of 11:28 GMT, the pound rose slightly to $1.3054, but remained below the previous session’s two-week high of $1.3102.

BOE Governor Mark Carney

BOE Governor Mark Carney explained that financial conditions have improved and that global trade tensions have eased, but domestic tensions have continued, referring to Brexit.

Consumption has been stronger than predicted, but business investment plummeted by 2 percent rather than growing by 4 percent, Carney mentioned.

Interest rates must rise faster or inflation will overshoot, but the BOE expects to raise rates at a gradual rate, he added.

Carney stressed that markets are underestimating future rate hikes, which means that the borrowing cost may rise faster than the market expects.

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