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Financial News: Bank Of England Lowers Growth Outlook

Bank Of England Lowers Growth Outlook

05/10/2018 - 08:55:00 (RTTNews)

(RTTNews) - The Bank of England decided to maintain its key interest rate and quantitative easing on Thursday as it forecast slower economic growth and inflation than its previous projections.

Seven members of the Monetary Policy Committee voted to maintain the benchmark rate at 0.50 percent, while two sought a hike. Policymakers unanimously decided to maintain the quantitative easing at GBP 435 billion. The decisions were in line with economists' expectations.

The bank had previously raised its key rate in November 2017, which was the first hike in a decade.

Ian McCafferty and Michael Saunders again preferred a quarter point increase in rates as they judged the weakness in the first quarter GDP data to be temporary or erratic, heavily affected by adverse weather.

Both policymakers continued to judge that a modest tightening of monetary policy at this meeting could mitigate the risks of a more sustained period of above-target inflation.

Nonetheless, for the majority of MPC members, an increase in Bank Rate was not required at this meeting. Policymakers observed that the costs to waiting for additional information were likely to be modest, given the need for only limited tightening over the forecast period to return inflation sustainably to the target.

They said an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon.

Until few weeks ago, markets were expecting a rate hike in May. Meanwhile, the bank reiterated on Thursday that any hike in rates will be gradual and limited.

The economy is projected to grow 1.4 percent by the second quarter of 2018 instead of 1.8 percent estimated in February. The bank expects the first quarter growth to be revised up to 0.3 percent from the initial estimate of 0.1 percent.

GDP growth is seen at 1.7 percent each in the next three years. The projections for 2019 and 2020 were left unchanged.

At the press conference, BoE Governor Mark Carney said the outlook for the UK remains clouded by Brexit uncertainties.

Further, he said inflation is projected to fall back slightly more quickly than in February, reaching the 2 percent target in two years.

The bank forecast inflation to slow to 2.1 percent by the second quarter of 2019 before easing to 2 percent by mid-2020.

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