BoE interest rate decision comment: “The unreliable boyfriend returns.”

by | May 10, 2018

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Bank of England

Ben Brettell, Senior Economist, Hargreaves Lansdown, said: “Not for the first time, Mark Carney’s policy of guiding the markets as to what to expect has backfired. A month or so ago it looked like a May rate rise was a near-certainty. The Bank of England had upgraded its growth forecasts and in March two members of the MPC broke ranks and voted for an immediate rate rise. Markets were then pricing in a 90% chance of a rate rise at this month’s policy meeting.

“But since then things have changed. First-quarter economic growth was a disappointing 0.1%, and the ONS said the bad weather wasn’t to blame. Add in an (un)healthy dose of Brexit uncertainty, and the chance of a rate hike had dwindled to just 8% at the start of this week.

“As such today’s no change decision wasn’t a surprise, and barely caused a ripple in the markets. Sterling lost around half a cent against the dollar, but the real damage had been done in the weeks leading up to today, with the pound almost eight cents weaker than four weeks ago. The FTSE 100 gained a few points on the news.


“The minutes were a fairly uninspiring read, with the Bank noting its forecasts hadn’t changed much since they were last updated in February. Wage growth and domestic cost pressures were only getting gradually firmer, and don’t justify higher rates at present. As at its March meeting, just two members voted for a rate rise today.

“Personally I think we might not see a rate rise for the rest of the year. But while savers will be disappointed, it’s pretty good news for investors. Stock markets don’t tend to like rising interest rates much, so an environment where rates rise only gradually should be supportive for the UK stock market.”

Sarah Coles, personal finance analyst, Hargreaves Lansdown, added: “Savers who had been holding out for a May rise are like Arsenal fans waiting for an away point in 2018: they won’t be terribly surprised by the result, but they may well be disappointed.


“With any luck, the MPC’s decision will persuade savers than rather than trying to time their strategy to coincide with rate rises, they should simply get on and fix for the most suitable period for their circumstances at the best available rate today.

“Borrowers saw new mortgage rates jump – along with swap rates – a month ago, when an interest rate rise in May seemed like a foregone conclusion. In the past few weeks we have seen a pause while the market waited for the rate decision, so there are likely to be some competitive new rates coming to the market over the next few days and weeks. We are still seeing historically incredibly low rates, so anyone coming to the end of their fixed deal, or sitting on their lender’s SVR, should consider remortgaging as soon as possible in order to take advantage.”

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