Pound falls as BoE hold interest rates again – but experts argue a rise is still on the horizon
The pound has fallen on the news that the Bank of England has chosen not to raise interest rates, falling 0.2 per cent against the dollar to $1.35.
The decision came after a slew of weak economic data put governor Mark Carney’s plans to raise rates above historic 0.5 per cent levels on hold. Just this morning, the Royal Institute of Chartered Surveyors said London house prices had their worst month in a decade, and prices are predicted to continue falling.
The Bank’s Monetary Policy Committee (MPC) said the lower-than-expected economic growth in the first quarter was likely to be a temporary blip, but that it would err on the side of caution.
Borrowers breathed a sigh of relief after the Bank of England backed away from an interest rate rise today – but have been warned not to expect the low rate environment to stay for long.
Rain Newton-Smith, Confederation of British Industry’s chief economist, said: “The MPC was clearly swayed by a series of softer economic data recently, and is waiting to see whether this marks the beginning of a more prolonged slow patch.
“But while it held fire this month, we cannot yet rule out further rate rises in the near to medium-term. The MPC’s view of the UK’s potential growth – which it believes to have shifted down – is unchanged, meaning even modest economic growth is likely to stoke inflation. Indeed, the recent firming in wage growth may be an early sign of domestic inflationary pressures picking up.
“Analysts and financial markets will be watching the MPC closely for any more signals around the timing and pace of future rate rises. Clear communication from the Bank of England will be important to help businesses and households plan for the future, and minimise uncertainty about changes in monetary policy.”
Kevin Roberts, director of Legal & General Mortgage Club, said: “Today’s decision is welcome news for borrowers and allows them to continue making the most of these near record low rates. Although there is a great deal of speculation about future rises it is important not to get carried away. Any rise should be gradual and it will likely remain a good time for borrowers to assess their current mortgage situation.”
Craig McKinlay, sales and marketing director at Kensington Mortgages, added: “Only until recently did a rate rise feel inevitable in May, and it is likely many borrowers will feel relieved by today’s news.
“However, we shouldn’t remain under the impression that today’s outcome will last forever. Swap rates between banks are still on the increase and a further, albeit gradual rise, at some point this year is still very likely.”
Kerim Derhalli, chief executive and founder of Invstr, said: “As expected, a recent slowdown in economic growth, with disappointing GDP data and consumer spending, has steered governor Carney’s hand to keep a hold on interest rates.
“With a May rise in rates looking like a formality in April, the recent turnaround has proven that the outlook remains constantly uncertain and whether to raise continues to be a tricky decision for the Bank of England.
“Where we can hope to see greater certainty later in the year is through positive progress in Brexit negotiations, which can lend some much-needed stability to business confidence and the UK economy as a whole.”
Dipanjan Roy, senior investment strategist at Prudential UK, said his firm’s view “has always been that the UK has entered a lower long-term growth environment since the Brexit referendum and we do not believe that the UK economy will be strong enough for the BoE to hike rates as quickly as the market was anticipating.
“Our baseline economic view is that the BoE will be able to hike rates at most once in 2018.”