Bank of England talks down rate cut chances

Added 3rd November 2016

The Bank of England has moved to play down the prospects of a further cut to the current UK base rate of 0.25%.

Bank of England talks down rate cut chances

The central bank said economic data has recovered from the lows immediately following the EU referendum and its preliminary estimate of GDP growth this year was above expectations at 1.4%. 

The monetary policy committee was unanimous in its decsion to hold rates at the current level. 

The BoE also said it now expects inflation to be 2.7% next year, and stay at a similar level in 2018.

This announcement coincides with the latest UK services PMI report, which said the index has risen to 54.5 from 52.6, representing the strongest growth seen since January.

“No alarms, no surprises and no rate move from the Bank of England,” said Tim Graf, head of macro strategy – Europe at State Street Global Markets. “Governor Carney’s comments last week, highlighting the limits to the MPC’s willingness to look through rising inflation, hammered home the message that August’s comprehensive ease represented the bulk of their Brexit response. Monetary policy is likely out of picture until at least February and the next release of the quarterly inflation report. In the meantime, Chancellor Hammond’s Autumn Statement, released later this month will be the next key event for sterling and UK asset markets.”

“While Governor Carney will doubtless be relieved to see too much inflation rather than too little, he is now on alert for too high an overshoot, suggesting he may not be displeased by today’s rebound in the pound, which could help limit inflation and remove any need to consider an interest rate hike,” added Russ Mould, investment director at AJ Bell.

“Mr Carney has warned before that the UK is dependent upon “the kindness of strangers” – by which he means overseas buyers of Gilts and sterling-denominated bonds and those banks prepared to lend to us,” Mould continued. “If sterling looks set to drop much lower, overseas lenders or bond-buyers may take fright and either stop buying or at least demand higher interest rates, or Gilt yields to compensate them for the higher risks associated with sterling assets.” 

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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