To nobody’s great surprise, the Monetary Policy Committee of the bank of England has decided to leave interest rates unchanged at 0.5%. In the weeks leading up to the actual decision, there had been some speculation that the Bank would act to tighten monetary policy on the back of Governor Mark Carney’s comments, but it has been odds on for some time that the MPC would delay a rise until (probably) August. Sterling had gained strength on the supposition of a rise, but investors started to factor in the likelihood of an “as you are” decision in recent weeks.
The Bank has described recent disappointing economic data as a “temporary soft patch”, implying rates will rise in the fullness of time (with interest rates near an all time low, this is one of the safest of bets and only a question of timing). Accordingly, the Bank has trimmed its full year growth forecast (issued in February) down from 1.8% to 1.4%. In contrast to what the Office for National Statistics said when commenting on poor Q1 growth, the Bank is of the opinion that the current “soft patch” is due to the late and hard winter disruption caused by “The Beast from the East” in March. 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). Q1 growth came in at a desultory 0.1%.
Mr Carney was Bullish about the economy, suggesting that the: "underlying pace of growth remains more resilient than the headline data suggests".
The decision to keep rates on hold will be welcomed by the 4 million or so households on a “tracker” or variable interest rate mortgage as any rise would increase their monthly repayments, but the 45 million Brits who have savings in the bank will be less happy as the return on their investment will be unchanged.
An interest rate rise would have helped to strengthen the Pound, but in the event it slipped back from $1.3617 before the decision to trade at $1.3500 at the time of writing (recovering from a low of $1.3471).