Sterling Tumbles as BoE Keeps Rates on Hold, Cuts Growth Forecasts

On their marks Unite members and workers in Carney masks picket the Bank’s head office in the City of London

Wage growth was also revised down by the bank.

And yesterday it said the economy will grow by 1.7pc in 2017, up from a forecast of just 1pc made after the referendum.

It also fell around a cent against the dollar, plumbing a three-day low of $1.3140, having earlier reached an 11-month high of $1.3267 against the United States currency.

One day after the bank cut its growth forecasts and Governor Mark Carney warned that the outlook is highly dependent on how the United Kingdom manages its exit from the European Union, Broadbent said that clarity on the divorce is vital for companies.

The odds of the BoE raising interest rates in the coming months naturally slumped in the wake of the meeting, something which is likely to continue to weigh on GBP exchange rates. However, the case for a rate hike has strengthened in recent months.

Secondly, there's still no clear transition deal for Britain's relationship with the European Union after Brexit. Kristin Forbes, a hawk, has since been replaced with Silvana Tenreyro, who voted to hold the rate steady in Thursday's decision.

"Monetary policy cannot prevent the weaker real incomes likely to accompany the move to new trading arrangements, but it can influence how this hit to incomes is distributed between job losses and price rises, and it can support United Kingdom households and businesses as they adjust to such profound change".

He said the drop in sterling following the Brexit vote had fuelled inflation.

In contrast, lower interest rates can be justified as it can lead to higher spending due to the increase in the prices of assets.

The speed limit of the economy has slowed, Bank of England governor Mark Carney said, with uncertainty around Brexit being blamed.

It expects GDP growth to fall back to 1.6% next year, down slightly on the previous expectation of 1.7% expansion.

Even as the BoE trimmed its projections for United Kingdom gross domestic product and earnings growth in the short-term, it indicated that rates might need to rise by more than financial markets were then expecting.

"While importers are still suffering the headache of higher foreign supplier and equipment costs, if the economy improves further in the second half of this year we could see a stronger pound, as the Bank warned that tightening may be required to bring inflation back down to target".

The MPC was split six-two over the decision as it seeks to meet its 2% inflation target.

Fabrice Montagne, chief United Kingdom and senior European economist at Barclays, said: "We expect the Bank of England to downgrade its forecast in order to reflect disappointing data". As this pattern extends (which it's expected to do tomorrow) the market will be getting closer and closer to full employment, more pressure on inflation and wage rises.



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