Bank of England leaves rates at 0.25%
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August 03, 2017 01:00 AM

Bank of England leaves rates at 0.25%

Sophie Baker
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    Bloomberg

    The Bank of England left interest rates unchanged at 0.25%, with money managers expecting rates to be held for the rest of the year at least.

    Members of the bank's Monetary Policy Committee, which sets policy to meet a 2% inflation target while helping to sustain growth and employment, voted 6-2 to maintain interest rates at 0.25%, Aug. 2. The committee also voted to maintain the bank's corporate bond purchase program and government bond purchases.

    The bank also revised downward its forecast for U.K. growth to 1.7% for 2017. The May report forecast growth at 1.9% this year. For 2018, growth was revised to 1.6% from 1.7%.

    Bank of England Governor Mark Carney, speaking at a news conference, said it is already evident that "uncertainties about the eventual relationship (with the European Union) are weighing on the decisions of some businesses," and that the impact of Brexit is being seen in macroeconomic numbers and investment.

    Money managers were not surprised by the decision, citing weaker than expected growth, wage and consumer data since the committee's June meeting. They also expect rates to hold for the rest of the year.

    However, the impact of Brexit means a hike will have to come. "Strong words from Mr. Carney," said Lucy O'Carroll, chief economist at Aberdeen Asset Management. "His main message is that interest rates will have to rise in the next two years because of the damage Brexit is already doing to the economy."

    Lombard Odier Investment Managers' senior investment strategist Charles St-Arnaud said in a reaction comment: "(Mr.) Carney said that not enough monetary tightening is currently being priced in by financial markets. We believe this is largely the result of weak productivity and potential growth. That means that excess capacity could be reduced more rapidly if growth picks up, generating inflationary pressures. While this is likely, we believe that continued uncertainty coming from Brexit negotiations will continue to drive inflation and the ability of the Bank of England to increase its policy rate faster than current market expectations. With this in mind, we believe that it will be hard for the BoE to hike rates before the end of 2017 and to tighten more aggressively than the market currently expects. Judging by the reaction to the decision, financial markets seems to agree with our view, with yields lower across the curve and the weaker GBP."

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