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Pound, Gilt Yields Slide as BOE Rate-Increase Expectations Ease

06 August, 2017, 01:37 | Author: Melinda Barton
  • Support Mc Donnell joins protesters

"A base rate rise this year, whilst not a certainty, is possible".

Governor Mark Carney speaks at 12.30 p.m.

Jake Trask, FX research director at OFX, added:"Sterling tanked as the BoE made a decision to hold interest rates". On the back of the news the pound fell one cent against the dollar to trade at 1.3147. Shares rose and British government bond prices jumped.

Ishaan Malhi, CEO and founder of online mortgage broker Trussle, agrees that the Bank of England's decision to hold interest rates has "direct implications for every household, positive and negative".

The Bank of England warned Thursday that Britain's economy is being held back by continued uncertainty over its departure from the European Union. They have been at that level since August previous year.

The BoE cut its estimate for 2017 GDP growth to 1.7% from a forecast of 1.9% given three months ago, it said in a report accompanying the latest monetary policy update.

The BOE has revised down its 2017 growth projections, to 1.7 percent from 1.9 percent in May, saying the United Kingdom economy will remain "sluggish".

John McDonnell, the main opposition Labour Party's top economic official, attended the protest and called for the bank to set an example to employers by raising their wages. He does not provide a more hawkish statement than the meeting minutes and the QIR.

In June's meeting, three members of the MPC voted for a rise. Bank chief economist Andy Haldane surprised onlookers by voting to keep the current rate, despite speculation he may have been in favour of a rise.

In an interview with BBC Radio, BoE Deputy Governor for Monetary Policy, Ben Broadbent said: "I think there may be some possibility for interest rates to go up a little bit".


"Brexit even overshadows consumer borrowing, which the Bank has lately sounded anxious about".

"The chances of a 2017 rate hike now look dead and buried", said Jake Trask, foreign exchange research director at OFX in London.

The Bank kept its asset purchase programmes unchanged on Thursday. £78 billion has already been lent to banks through the scheme.

As a result, analysts expect there will be only two votes to hike rates this week.

With average wage growth falling below the rate of inflation since May, the Bank has revised wage growth forecast for 2018 to 3%, down from 3.5% previously.

The Bank also cut its growth forecast down to 1.7% down from 1.9% in May.

This was followed by gross domestic product figures showing growth was limited to 0.3% in the second quarter in what the Office for National Statistics described as a "notable slowdown" for the economy. The MPC now sees growth at 1.6 percent in 2018, down from 1.7 percent, while GDP in 2019 remains at 1.8 percent.

It blamed the downgrade on Britain's stubbornly weak productivity and in part on the Brexit uncertainty.

The MPC says it expects inflation to rise in the next few months, peaking at around 3% in October.

Prior to June's inflation reading of 2.6%, there had been growing clamour for a rate rise as a Brexit-fuelled increase in the cost of living ramps up pressure on hard-pressed households.

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