Published: Sun, May 14, 2017
Money | By Armando Alvarado

Bank of England holds rate; trims growth forecast

"It is possible that some of the recent weakness is a outcome of companies' uncertainty about the outlook, with some unwilling to raise wages at a faster pace until they have more clarity about their future costs and markets", the Bank said.

Its 2017 growth forecast was reduced to 1.9% from 2.0%, though the central bank's projections for 2018 and 2019 were both increased by 0.1 of a percentage point. "For some time, the responses of financial markets and households to the UK's decision to leave the European Union have diverged", he said.

Inflation is now running at 2.3 percent, above the bank's target rate of 2.0 percent, raising the possibility that the bank could lift rates to dampen rising prices.

But Mr Carney warned that improving fortunes were based on a "smooth" adjustment when it came to European Union withdrawal that would see a transition period to avoid a cliff edge departure.

The balance on the MPC remained largely unchanged from the previous meeting apart from the absence of former deputy governor Charlotte Hogg, who recently resigned after breaking the Bank's code of conduct.

Meanwhile, the FTSE 100 rose 0.52 percent or 37.94 points to 7,338.80 by 09:50 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained neutral at 36.45 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

Economists also say the BoE is likely to trim its forecast for economic growth of 2.0 percent this year after the weak start to the year, even if some private-sector surveys have suggested a bit of a recovery in April.

Inflation in March was at 2.3%, according to the Office for National Statistics, above the bank's target of 2%.

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"This is going to be a more challenging time for British households", Carney told a news conference, highlighting that inflation would peak at almost three percent this year.

Sterling fell as much as 0.7 per cent to a one-week low US$1.2849 following the Bank's release.

But its quarterly inflation report signalled this year would be the worst for the income squeeze, predicting that real wages would begin to pick up over the next three years, while the pound's recent rebound would limit the surge in inflation.

But if wage growth fails to rise, "there will be consequences", the governor warned.

These market assumptions were based on average prices in the two weeks to May 3. Last year Britain's economy grew 1.8 per cent.

Outgoing rate-setter Kristin Forbes is likely to repeat her call for a hike to 0.5% after breaking rank in March on fears over surging inflation, which marked the first split decision since last July. "Look at it and think of us".

However, despite the solid vote for no change on the cost of borrowing, the minutes of the meeting relayed that "some members" still thought that it would take "relatively little further upside news" on the inflation outlook for them to support a monetary tightening.

The sudden slowdown the BoE expected did not materialize but signs are growing that consumer spending is now wilting in the face of rising inflation, fueled partly by the pound's plunge following the Brexit vote.

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