Bank of England maintains policy rate

Carney: Economic outlook 'clouded by Brexit'

And this is what warrants only very gradual and limited path of interest rate hikes in the UK. But growth was weakest in Britain, where - less than a year before it is due to leave the European Union - Brexit-related pressures have squeezed consumer spending power and hurt firms' willingness to sign off on major investments.

After the financial crisis rocked the framework of monetary policy, rate setters took to giving "forward guidance" to steady the ship, but the recent experience of British and Japanese central banks suggests it doesn't guarantee a smooth journey.

The base rate is the "rate of interest [paid] on reserves held by commercial banks at the Bank of England".

"We expect the disappointing first quarter to be portrayed as a temporary lull by the MPC. and therefore expect the lack of a hike to be presented as an expected postponement rather than a cancellation", UBS interest rate strategist John Wraith said.

"With a May rise in rates looking like a formality in April, the recent turnaround has proven that the outlook remains constantly uncertain and whether to raise continues to be a tricky decision for the Bank of England".

However, at the same meeting during which the Bank's MPC voted to hold interest rates steady, they also downgraded their forecast for the year's economic growth from 1.8% to 1.4%.


Five-year British government bond yields GB5YT=RR, sensitive to expectations for BoE rates, slid nearly seven basis points after the decision to approach a three month low, and last stood at 1.13 percent, down four basis points on the day.

While this had been expected by the vast majority of economists polled by Reuters, financial markets picked up on a slightly cautious tone from the BoE that pushed sterling near to four-month lows against the dollar.

The BoE said it expected Britain's economy would grow by 1.4 per cent this year, down from the 1.8 per cent rate it predicted in February, which was a bit above what most economists thought likely at the time.

The minutes of this week's monetary policy committee meeting show that rate rises are still being planned in order to meet the government's 2% inflation target, but the language was notably softer than in February when the Bank said policy would probably need to be tightened earlier and to a greater extent than the markets were expecting. That wasn't a surprising decision following weaker than anticipated growth and inflation data.

United Kingdom economic growth has almost flatlined in recent years. It said this would come in the form of two 0.25% rate hikes, believed to be in May and November. Inflation has fallen after reaching its highest in more than five years in late 2017, but at 2.5 per cent it is still well above the BoE's 2 per cent target. Savers are likely getting beyond fed up with the low rates that have plagued them for so long, which is why their hopes had been pinned on another base rate rise boosting their returns. "At present, interest rate markets are attaching only a 50 percent probability to such an outcome", added Lloyds Bank.

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