Investing.com - The Bank of England left interest rates on hold on Thursday, a widely anticipated decision after a recent series of economic reports pointed to a loss of momentum in the British economy.
The BoE’s Monetary Policy Committee was split on the decision to keep interest rates unchanged at 0.5% with two out of nine members voting in favor of a quarter point hike.
The MPC voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion ($13.5 billion) and also to keep the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion ($588.4 billion).
Until mid-April financial markets had priced in a probability of more than 90% that the central bank would raise rates by a quarter of a percentage point at today’s meeting, but the bank’s forward guidance was knocked off course by a recent string of weak economic reports.
Britain's economy slowed to near stagnation in the first three months of 2018, with gross domestic product rising by just 0.1%.
Last week survey data showed that private sector activity rebounded considerably less than expected in April following a sharp slowdown in March as a result of severe weather. Recent data on wage growth and inflation has also disappointed.
The inflation report indicated that the BoE attributed that weakness to adverse weather in late February and early March and commented that growth was likely somewhat stronger in the first quarter than implied by the preliminary estimate.
In that light, the MPC noted that its central forecast for economic activity remained “little changed” from the previous report and GDP is expected to grow around 1.75% per year on average over the forecast period.
With regard to price stability, the MPC predicted that it expects CPI inflation to fall back slightly more quickly than in February and reach its target in two years.
“The Committee’s best collective judgement therefore remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon,” the MPC explained.
“All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent,” it concluded.
Investors will now look forward to the press conference scheduled with BoE governor Mark Carney at 7:30AM ET (11:30GMT).