Bank of England keeps rates unchanged

Perception of Monetary Policy Standing

CPI inflation is now 2.5 percent, according to the latest figures for March. Under these assumptions, the Bank's inflation forecasts were downwardly revised a bit, with inflation now seen back to target at the end of two years and holding steady over the remainder of the forecast horizon. Their forecasts for the year were reduced principally to take into account the lower than expected performance that has already been and gone - growth predictions for subsequent years remain unchanged.

"CPI (consumer price index) inflation fell to 2.5 percent in March, lower than expected at the time of the February Report".

The rate has now changed just twice since March 2009 when it was lowered to a then record low of 0.5 percent in the wake of the financial crisis.

But the bank's caution is not expected to last indefinitely.

The IR projections implied that the MPC expects to raise rates three times in the next three years by 25 basis points each time. However, at the same meeting during which the Bank's MPC voted to hold interest rates steady, they also downgraded their forecast for the year's economic growth from 1.8% to 1.4%. Q1 growth came in at a desultory 0.1%.

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Significantly, the central bank dismissed most of the slowdown in the first quarter GDP growth as being temporary and continued to envisage a rebound in the second quarter GDP growth.

In minutes of the MPC meeting, the Bank said: "Weakness in the data for the first quarter had been consistent with a temporary soft patch, with few implications for the current degree of slack or for the outlook for the United Kingdom economy".

Economists had previously expected two rises in 2018 after the Bank's February forecasts, when Governor Mark Carney said rates would need to rise further and faster to rein in inflation.

CPI Inflation now sits at 2.3% and earlier predictions of solid economic growth through this year had led many to expect the Bank to vote to increase the base rate from 0.5%, where it has been for much of the past 8 years, bar a dip to 0.25% during 2017. Quilter Multi-Asset portfolio manager and head of investment, Anthony Gillham, said: "Just a few weeks ago a rate rise was seen as close to certain, with 90% of the market predicting a hike".

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