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Rate rise unlikely this year as BoE cuts growth expectations

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  • 20/06/2019
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Rate rise unlikely this year as BoE cuts growth expectations
The Bank of England (BoE) has held its base rate at 0.75 per cent but warned that economic growth is likely to be flat in the second quarter of the year.

 

The central bank’s Monetary Policy Committee (MPC) unanimously voted to hold the Bank Rate at 0.75 per cent, where it has been for almost a year, which is unlikely to come as a surprise.

However, it took a more concerned tone with its view on the nation’s economy, noting that Brexit was continuing to dominate and that no deal had become more likely since its May report.

“After growing by 0.5 per cent in 2019 Q1, GDP is now expected to be flat in Q2,” the MPC said.

“That in part reflects an unwind of the positive contribution to GDP in the first quarter from companies in the United Kingdom and the European Union building stocks significantly ahead of recent Brexit deadlines.

“Looking through recent volatility, underlying growth in the United Kingdom appears to have weakened slightly in the first half of the year relative to 2018 to a rate a little below its potential.

“The underlying pattern of relatively strong household consumption growth but weak business investment has persisted,” it added.

The bank also noted that the UK’s economic outlook will continue to depend significantly on the nature and timing of withdrawal from the EU.

It highlighted that this would be governed by the new UK-EU trading arrangements, whether the transition was abrupt or smooth, and how households, businesses and financial markets responded.

 

No rise expected this year

Santander UK chief economist Frances Haque noted that given the continued uncertainty over the timing and nature of Brexit, the decision to hold rates would not be a surprise to the market.

“Coupled with the lacklustre economic data published so far for the second quarter of this year, the MPC clearly continues to be cautious in its approach,” she said.

“Until there’s more clarity on the outcome of Brexit, it’s unlikely they will raise rates further. It now looks increasingly unlikely that we’ll see a rate rise this year.”

 

 

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