The Bank of England on Thursday held the UK interest rate at 0.75% as expected, despite rising pressure on inflation.
The central bank’s Monetary Policy Committee (MPC) voted unanimously to hold the rate unchanged at its May meeting. It also raised its forecast for GDP growth this year to 1.5%.
Economists had widely expected no rate change, but thought the Bank could adopt a more “hawkish” stance by hinting at rate rises later this year. The MPC reiterated that it would be raising rates in the next two years or so, but didn’t give an indication of when.
Dave Cheetham, the chief market analyst at trading platform XTB, said the Bank’s update provided “little real new information as to the future path of monetary policy.”
‘Slightly stronger’ growth
Inaction from the Bank of England comes despite strengthening economic growth globally, which is adding to inflationary pressure.
“The underlying pace of GDP growth appears to be slightly stronger than previously anticipated, but marginally below potential,” the bank said in a statement.
The bank increased its forecast for UK economic growth to 1.5% this year, from a previous forecast of 1.2% made in February.
However, this growth uptick was largely offset by cuts to inflation forecasts. The bank cut its inflation forecasts for 2019 and 2020.
Minutes show the central bank now expects rates to rise to “around 1% by the end of the forecast period, lower than in the February Report.”
The MPC also voted unanimously to keep the Bank of England’s asset purchase facility at £435bn.
The central bank caveated all this with a Brexit warning.
“The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal,” the MPC said in a statement. “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”
‘Right not to rock the boat’
Analysts said the bank's actions may signal that a rate hike won't be happening soon, if at all this year.
James Smith, a developed markets economist at ING, said: “The Bank of England's latest forecasts keep the door firmly ajar to further tightening. But the fact that policymakers have opted not to send a stronger hawkish signal to markets emphasises that this is unlikely to happen in 2019.”
Tej Parikh, senior economist at the Institute of Directors, said in a statement: “The Bank is right not to rock the boat, as political uncertainty lingers.
“Businesses are facing mounting cost pressures from higher wages, rising oil prices, and regulation, which may push price levels up in the future. As inflationary forces firm up, the case to raise interest rates may grow, but a hike would still be a bit of a blind bet before there is further clarity on the nature of Brexit.”
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “Markets are now pricing in a one in three chance of a UK rate rise by the end of this year.
“That looks a little rich from where we’re sitting, but markets find it difficult to price something as uncertain and manifold as the possible Brexit outcomes. Precise predictions should probably therefore be taken with a pinch of salt at the moment.”