Relief for borrowers as Bank of England holds interest rates

BoE Strongly Expected to Leave Rates on Hold

The BoE's Monetary Policy Committee (MPC) voted 7-2 to leave policy unchanged.

Speaking at the a press conference upon the release of the report, governor of the BoE Mark Carney added: "The underlying pace of growth remains more resilient than headline data suggests".

A lack of progress on Brexit and data from the British Retail Consortium showing the sharpest fall since the BRC started collecting retail sales data 23 years ago have added to the economic pessimism.Investors and traders will therefore be listening out for any hints by Carney that a rate rise in August is on the cards; now market pricing suggests the chances of an increase are around 57%.

The central bank said on Thursday that inflation had fallen faster than it expected. We expect an acknowledgement from Carney that economic conditions have worsened since the last meeting in March, while there is a good chance that we'll see a downward revision in the 2018 growth forecast, although this may be largely priced in.

Archer noted that the MPC had indicated in its minutes that it believed growth in the first quarter was greater than the initial estimates, pointing towards an upward revision when more data becomes available to about 0.3 percent, which is in line with recent rates of growth.

Data turned particularly sour across the month of April.

Over all, he said, the BoE was sticking to its message that rates would probably need to rise - for only the second time in more than a decade - once that recovery was clear.

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James Smith at ING said the approach of crunch negotiations about Britain's post-Brexit trade deal with the European Union could make it hard for the BoE to raise rates later this year. "Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank's newly lowered forecasts, suggest".

Bank Governor Mark Carney had already weakened expectations for a May rate rise when he signalled last month that "mixed" economic data could delay the increase.

In comments after the bank held its main interest rate at 0.5 percent, Carney said the sharp economic slowdown witnessed in the first quarter was likely a temporary phenomenon related to the bad weather that gripped much of the country.

He added: 'However, the Bank is also anxious that the underlying pace of economic growth may have in fact waned so far this year.

Such a low rate of growth made the prospects of a rate rise 'now close to zero, ' said Pantheon Macroeconomics at the time. If the manufacturing production falls to -0.2% or lower, then the odds for an August rate hike will fall further.

A few days before Thursday's announcement, economists polled by Reuters on average expected rates to rise in August, though a number think the BoE may have missed the boat if growth continues to be lacklustre in the run-up to Brexit.

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