Bank of England holds rates in 7-1 vote


The pound sunk further on the "Super Thursday" announcement from the Bank, after Bank of England governor Mark Carney confirmed at the press conference that the weak United Kingdom wage growth in recent years is likely to persist, with real earnings set to fall this year. In February he said Britain's economy faced "twists and turns" on its road to Brexit, suggesting he remained in no hurry to consider higher interest rates.

"We also suspect that consumer spending will be weaker for longer than the Bank of England expects".

Markets are now expecting rates to move higher at the start of 2019.

He said growth and inflation could easily exceed the BoE's forecasts made in February, although his comments came before poor economic growth figures for the first quarter.

Monetary policy can not prevent either the necessary real adjustment as the United Kingdom moves towards its new worldwide trading arrangements "or the weaker real income growth that is likely to accompany that adjustment over the next few years", the report said.

At 12.00 p.m. BST (7.00 a.m. ET) the Bank of England will announce its latest interest rate decisions, and crucially, present its quarterly Inflation Report - the three-monthly update of its forecasts for the British economy.

For this reason, it's unlikely Mark Carney or the Bank will be particularly bullish today and with political uncertainty both in Westminster and in the UK's relationship with Brussels, there's a slim chance that markets will have to rush to price in expectations of imminent policy tightening. If the Bank's outlook for pay this year proves correct, it would leave wages falling in real terms - once adjusted for inflation.

The most recent data puts wage growth was at 2.2 per cent, which is expected to slow further this year before picking up to 3.75 per cent by the end of 2019, according to the Bank.

Although the BoE said it might need to raise rates before the late 2019 date market pricing indicated, that was nine months later than its February forecasts showed. "There had also been evidence of a slowing housing market activity and prices, which, in the past had been accompanied by a softening in consumption growth", the minutes said.

Carney could draw attention to this if the MPC has become uneasy about market expectations for interest rates, said JPMorgan economist Allan Monks.

However, the Bank of England said it expected a pick-up in foreign trade and investment would offset a shortfall in domestic demand this year.

Michael Saunders, who left Citi to join the Monetary Policy Committee in August, hinted in April he might side with US academic Kristin Forbes, so far the sole supporter on the MPC for raising rates from their current level of 0.25 percent.

The Bank of England (BOE) held interest rates steady at 0.25 percent, as expected, on Thursday while implementing some widely anticipated modifications to its growth and inflation assumptions over the three-year forecast horizon.

The BoE said inflation was likely to fall back to 2.16 per cent in just over two years' time. In the final year of the forecast, however, the output gap closes and inflation rises slightly further above the target.