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Bank of England leaves rates unchanged as economic data weakens

Bank of England Gov. Mark Carney
Mark Carney, governor of the Bank of England

The Bank of England left interest rates unchanged in a move that money managers say was expected on the back of recent economic data.

However, the decision not to hike rates was a turnaround from expectations following rhetoric from the bank in February.

The BoE said Thursday its monetary policy committee voted 7-2 to maintain the bank rate at 0.5%. The committee also voted at its meeting to maintain its asset purchase program.

Reaction comments from money managers said the decision not to move was expected. They also warned, however, that the bank may have missed its chance to hike given upcoming market challenges.

"The Bank of England has adopted a wait-and-see mode in the face of recent negative data on growth and inflation," said Silvia Dall'Angelo, senior economist at Hermes Investment Management. "At its previous monetary policy meetings in February and March, the bank sounded quite hawkish, hinting at a follow through to the November hike to take place as early as in May. However, recent disappointing economic data progressively reduced the chances of a move today, and GDP statistics last week," which showed that economic activity almost stalled in the first quarter of 2018, "were probably the nail in the coffin of an imminent rate hike."

The BoE said in a news release announcing the decision that the preliminary estimate of U.K. GDP growth in the first quarter was 0.1%, which is 0.3 percentage points lower than it expected in February. The bank said this likely in part reflects "adverse weather in late February and early March," but that indicators suggest that growth was somewhat stronger than the estimate implies. The bank also cited the consumer price index inflation measure, which was 2.5% in March and lower than expected at the time of its February inflation report.

"This is quite the turnaround from where we were just weeks ago," said Luke Bartholomew, investment strategist at Aberdeen Standard Investments, in a separate comment. "(Bank of England Gov. Mark) Carney has always made clear that interest rate moves hinge on the data and the bank clearly has concluded that the recent run of weak data can't just be dismissed as a weather effect. Investors widely predicted that the bank would step back from any move today. But the downgraded growth projections, and the stated desire to wait for additional information, suggest that we won't get a hike any time soon either," he said.

Mr. Bartholomew added that the decision not to hike raises questions about the way the bank guides markets about its thinking. "It is yet more proof that we have to take that guidance with a pinch of salt. While the bank has consistently argued that there is little further room for the economy to grow freely and wages to pick up, when it's come to it, they've balked as the data dipped going into this meeting. With elevated uncertainty weighing on the economy, it seems the bank is much more sensitive to new information, and less keen to look beyond what they claim is temporary weakness," he said.