Pensions - Articles - Comments on the MPC decision to maintain interest rates

Marcus Newton
February 10, 2018

BTMU Research discusses the reaction to today's BoE policy meeting in which MPC voted to maintain the Bank Rate at 0.50% and the stock of purchased assets financed by the issuance of central bank reserves at £435 billion.

His remarks were published in the wake of the Monetary Policy Commitee's latest Inflation Report, published the day before, which revealed rate-setters' intention to possibly bring forward and accelerate the pace of policy tightening.

The EY ITEM Club is forecasting two hikes in 2018, with interest rates at 1.75% by end of 2020.

The value of the pound initially jumped nearly 1% against the dollar, but fell back to about 0.5%.

He said this week's sharp falls had only taken markets back to where they were two months ago, adding that investors may have overlooked the inflationary consequences of healthy growth figures across major economies.

Many savings accounts are already loss-leaders for banks and building societies and so they are less likely than mortgage lenders to pass on any rise in interest rates.

It comes as market confidence returned following yesterday's Bank of England (BoE) suggestion that interest rates would need to be increased faster than initially expected.

A hike in May would be the bank's second in six months following one in November, which was the first in a decade.

But for savers a move higher by the Bank of England could be a bonus, as High Street banks generally have to raise their rates of interest.

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This scenario, however, will leave inflation above 2% in three years, which can be judged to increase interest rates with more than the expectations of investors.

The Swiss bank UBS admits the outlook for the United Kingdom is not as bad as it thought and says the economy is well-positioned to benefit from strong global growth.

He has additionally hinted at raising United Kingdom interest rates in the near-future, assuming that Brexit negotiations continue to go smoothly.

The Organisation for Economic Cooperation and Development, the West's leading economic think tank, said the UK's economy would grow by 1.6 per cent - up from the 1.2 per cent it predicted just a few months previously.

Unemployment is at its lowest for 43 years and, finally, wages are starting to pick up - as one would expect when the jobless rate is so low. That's more than double the gap for the first quarter of 2019, even though what happens further in the future normally involves a broader range of uncertainty. It now expects 1.8% growth this year, as against 1.6% forecast in November.

The warning from governor Mark Carney came as he delivered the quarterly BoE inflation report.

The Bank of England (BoE) has held interest rates at 0.5% but adopted a more hawkish stance by suggesting a rate hike would be needed "somewhat earlier" and to a "somewhat greater extent" than anticipated.

The chancellor replied by stressing the importance of boosting United Kingdom productivity and the government's efforts to make that happen.

Other reports by MaliBehiribAe

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