Published: Tue, May 16, 2017
Money | By Armando Alvarado

BoE unlikely to hike rates until after Brexit deal finalised

Real income growth, to use our terminology, will be negative.

The Bank now expects inflation to be 2.7% this quarter, up from the 2.4% rate it was forecasting in February.

Echoing language from the last policy meeting in March, the Bank of England said it would not take much upside news on growth and inflation for some other members of the MPC to join Forbes.

It is thought the Bank will make a marginal downgrade to its forecast for 2% growth this year after the first quarter disappointment, while it may also tweak its inflation forecasts higher.

In its latest quarterly inflation report, it forecast inflation to keep rising above its 2 per cent target, and it also warned that consumer spending is expected to slow down more than it previously expected in the coming months.

The Bank of England has warned of "consequences" if a squeeze on wages continues as it cut its economic growth forecast.

The central bank's Monetary Policy Committee expects to rise further over the year, peaking at a little below 3% in the fourth quarter.

Meanwhile, the FTSE 100 rose 0.16 percent or 11.87 points to 7,398.50 by 10:10 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bearish at -159.52 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

All eight members of the bank's Monetary Policy Committee (MPC) opted to leave the amount of QE cash stimulus pumping around the economy at £435 billion ($560 billion, 515 billion euros).

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The Bank of England said yesterday that it may need to raise interest rates before the late 2019 date markets had been expecting, as it saw inflation rising and the economy growing steadily over the next few years.

"Mr Carney remains of the view that the Brexit negotiating period will be extremely challenging for the United Kingdom economy, but today's announcement introduces a more hawkish tone than we have seen previously", Stevenson concluded.

On growth, the BoE has lowered its 2017 forecast to 1.9%, but raised its 2018 forecast from 1.6% to 1.7%.

"The pound's fall was also exacerbated by the bank's assessment about household consumption", said Razaqzada.

Sterling slipped after the Bank's announcement, which some investors had expected to show a deeper split among policymakers about the need for higher interest rates now. "With unemployment falling to its estimated equilibrium rate, however, wage growth is expected to recover significantly, and the drag from domestic costs to lessen, over the same period".

The Bank of England predicts the annual inflation rate will rise to 2.7 percent by the middle of this year, up from the current rate of 2.3 percent and pushing the official limit of close to 2 percent.

Governor Mark Carney said the Bank now believed Britain's economy would grow by less than 2 per cent in 2017 after a sluggish start to the year. "This suggests to us that there is still a divide in views between the hawkish external MPC voters, and the more cautious governor/deputy governors".

Despite strong UK PMIs for April, March data published on Thursday morning came in well below expectations.

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