Interest Rates Held Again

Published / Last Updated on 10/05/2018

Bank of England

Today, by a majority of 7:2, the Bank of England Monetary Policy Committee (MPC) again voted to keep interest rates at a still historic low of 0.50% pa. 

Interest rates were increased in November 2017, the first increase since 2007.

GDP growth in the first quarter was 0.1%, 0.3% lower than expected in February.  They suggest caused by adverse weather in late February and early March. 

MPC forecast for economic activity is little changed: GDP is expected to grow by around 1¾% per year on average over the coming few years.  Business investment is still slow on Brexit uncertainty but a weak pound is supporting exports.   Household spending is down despite wage growth and domestic cost pressures are firming up as expected.

In addition, CPI inflation fell to 2.5% in March, lower than expected and this lowered pressure to increase rates.

Guess what the £ did?  £ weakened over the last few weeks with poor economic data as expectation of interest rate increases reduced.

Guess what the FTSE 100 did?  FTSE 100 has shot up over the last few weeks as FTSE 100 companies earn profits overseas and then convert back into a weaker sterling meaning higher profits.

We believe the market is going to now price in future interest rate rises in the UK later this year and imminent US interest rate rises.

 


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