Pound Declines As BoE Holds Rate Steady, Cuts Growth Forecasts

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There was bad news, however, for 2018, with the bank saying that it expects growth of just 1.4% in the United Kingdom this year, compared to 1.8% at its previous forecast.

He commented: "The manufacturing sector is still growing, and interest rate rises are needed to get back to normal monetary conditions - inflation of 2.5% does not change this". That reflects the soft growth seen at the start of the year.

A May rate rise had been described as a done deal following the MPC's last meeting in March. This is good news for borrowers but piles yet more misery on savers.

Looking ahead movement in the EUR/GBP exchange rate is likely to be dominated by the Bank of England's (BoE) latest rate decision later this afternoon. Governor Mark Carney said momentum will build up again as the year progresses.

The second reason the central bank opted against another rate increase is that inflation has fallen more than anticipated. But it puts all this down to the first-quarter slump, which it suspects will be revised up to 0.3% from the initial estimate of 0.1%.

How the Bank sees economic growth developing until the first quarter of 2021.

Cheetham said that hike "now appears to have been more a case of a reversal of the post-Brexit cut rather than the beginning of a sustained cycle of interest rate increases".


"The MPC continues to judge that the United Kingdom economy has a very limited degree of slack", the minutes said, noting that hiring intentions had remained strong and the jobless rate had continued to fall despite the sluggish growth in the first quarter of 2018.

The bank said recent reports of sluggish economic activity were enough to convince the majority of MPC members to keep rates on hold. Policymakers are not likely to take hikes off the table this year, as some forecasts have attached credence to.

'Survey data suggests that some of this slowdown can be linked to weaker economic growth in continental Europe, but companies are also reporting that domestic demand among households and businesses has continued to be dampened by uncertainty about the economic outlook and higher prices'. Moreover, the purchasing managers' index for the United Kingdom manufacturing sector, a forward-looking indicator widely watched in the markets, fell to a 17-month low in May. Meanwhile, a surprise rate hike could cause a jump higher. But "there was value in seeing how the data unfolded over the coming months", they added.

In another sign of slow growth in 2018, the British Retail Consortium said on Wednesday that overall retail spending contracted by 3.1% year-on-year in April.

The delay in rate increases has been due to two factors.

They repeated their calls for a rise to 0.75% to avoid more "abrupt" policy action further down the line.

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