Friday 19 October 2018

BoE says UK growth will pick up as rate held

Bank of England Governor Mark Carney speaks during the central bank's quarterly inflation report press conference in the City of London. Photo: PA
Bank of England Governor Mark Carney speaks during the central bank's quarterly inflation report press conference in the City of London. Photo: PA

David Milliken and William Schomberg

The Bank of England held interest rates steady yesterday and said weak growth during a snowy start to 2018 was likely to be temporary, but it wanted to be sure the economy was picking up in coming months before raising borrowing costs.

In sharp contrast to overwhelming expectations just weeks ago that they would raise rates, BoE policymakers voted seven to two to keep them at 0.5pc.

That was in line with forecasts from economists polled by Reuters in the past week.

Governor Mark Carney said the BoE - which cut its 2018 growth prediction and trimmed its inflation forecasts - expected growth would gain speed again. It was sticking to its message that rates would probably need to rise - for only the second time in over a decade - once that recovery was clear.

"What's the sensible thing to do? Do you act now or do you wait to see evidence that momentum is re-asserting," Carney told reporters.

"The judgement of the majority of the committee is you wait to see for some evidence of that reasserting."

Investors slightly pushed back their bets on when rates would rise, and sterling slid close to a four-month low against the dollar while the yield on two-year British government bonds edged down.

Rate futures showed less than a 50pc chance of a hike in August, the next time the BoE updates its forecasts.

"It looks like the 2018 rate hike has been delayed not cancelled," Fitch Ratings chief economist Brian Coulton said.

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

Growth slowed even more sharply in early 2018 on a mix of unusually icy weather and headwinds from Britain's impending European Union exit.

Recent data "had been consistent with a temporary soft patch...," most of the BoE's rate-setters said. "(But) there was value in seeing how the data unfolded over the coming months."

Despite weak growth, the BoE sees the need for rate hikes because it thinks the economy could overheat due to long-term weak productivity and lower immigration driven by Brexit.

Carney said in February that rates might go up sooner than the BoE had previously suggested, and was asked by a reporter on Thursday about the description of him as an "unreliable boyfriend" - first used by a British lawmaker because of his previous signals about when rates might rise, which misfired.

"The only people who throw that term at me are in this room," Carney told the news conference. (Reuters)

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business