gpolit.com
gpolit.com May 24, 2018


Investors price in chance BoE rates on hold until 2019

11 May 2018, 12:35 | Kenneth Drake

Investors price in chance BoE rates on hold until 2019

Mortgage

According to Reuters, "Britain's economy grew more slowly than most of its peers a year ago after a Brexit-driven jump in inflation hit consumer spending power and some businesses delayed long-term investment".

Many experts blame uncertainty related to Britain's exit from the European Union for the slowdown. Surveys have suggested little rebound last month.

The Bank expects growth of 1.4% in 2018, down from its previous forecast of 1.8% made in February.

"The recent weakness in data for the first quarter had been consistent with a temporary soft patch".

"There was value in seeing how the data unfolded over the coming months, to discern whether the softness in Q1 might persist", they said. "Stock markets don't tend to like rising interest rates much, so an environment where rates rise only gradually should be supportive for the United Kingdom stock market".

At the time of writing EUR/GBP exchange rate is down by around 0.2% this morning, following the release of the UK's latest trade and production figures.

The Bank of England is not actively discussing how to reverse the quantitative easing (QE) stimulus plan in which it bought hundreds of billions of pounds of government bonds with new money, Governor Mark Carney said on Thursday.

But the bank's caution is not expected to last indefinitely.

But in its most recent Quarterly Inflation Report the Bank blames above-target inflation on higher prices of imported goods caused by a weaker pound. There has been no sharp increase in swap rates or fixed rates in the mortgage market. It is, effectively, the fundamental interest rate on which most commercial interest rates on standard bank accounts and loans are ultimately based (though of course other things like risk will play a part when calculating interest on loans).

In its latest set of projections for the United Kingdom economy, published in the Inflation Report, the bank cut its forecast for economic growth this year from 1.8% to 1.4% and trimmed its growth for the following two years from 1.8% to 1.4%. While modest by historical standards, the projected pace of GDP growth over the forecast is nonetheless slightly faster than the diminished rate of supply growth, which averages around 1½% per year.

That would have been the bank's second rate hike in six months following November's, which was the first in a decade. Policymakers are not likely to take hikes off the table this year, as some forecasts have attached credence to.

Sterling was down 0.5 per cent against euro and 0.2 per cent against the dollar after the news. Only a week later, the first quarter GDP (gross domestic product) print came in at a tepid 0.1 percent quarter on quarter, below consensus of 0.4 percent and the BOE's own forecast of 0.3 percent.



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