Interest Rates Held

Published / Last Updated on 21/06/2018

Bank of EnglandToday, by a majority of 6:3, 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 reports suggest the economy is set to grow by 1.75% pa, an increase of 0.25% pa on past forecasts, adding weight to possible interest rate rises in August.

The MPC forecast for economic activity is little changed: GDP is expected to grow by around 1.75% per year on average over the coming few years.  Business investment is picking up and employment is stable but Brexit uncertainty still prevails. 

Interestingly, the majority fell from 7:2 to 6:3 as the Bank of England's Chief Economist, Andrew Haldane, switched sides to vote for an increase to 0.75% pa, yet Mark Carney, Governor, remained in the 0.5% pa camp.

In addition, CPI inflation fell to 2.4% in May, lower than expected and this lowered pressure to increase rates but with economic forecasts becoming more bouyant, pressure for rate rises are mounting to try and insure that Government inflation target of 2.0% pa (trend growth) target is achieved.

Guess what the £ did?  £ stengthened over the last few weeks with stonger economic data as expectation of interest rate increases increase.

Guess what the FTSE 100 did?  FTSE 100 fell as companies earn profits overseas and then convert back into a stronger sterling meaning lower profits.

We believe the market is going to now price in future interest rate rises in the UK next month and imminent US interest rate rises.