Sterling slumps as United Kingdom 2017 rate hike 'dead and buried'

  • Sterling slumps as United Kingdom 2017 rate hike 'dead and buried'

Sterling slumps as United Kingdom 2017 rate hike 'dead and buried'

Faced with uncertainty about the impact of Brexit on the world's fifth-biggest economy, the BoE trimmed its growth expectations for this year and next as rate-setters voted 6-2 to keep the Bank rate at a record low of 0.25 percent.

Majority of economists expect BOE to cut its growth forecasts today.

However, investors will still be keenly focused on the comments of governor Mark Carney, at a press conference at 12:30pm, as well as the updated forecasts for the next three years unveiled by the Bank.

The bank said that growth is likely to remain sluggish because the salaries paid to workers aren't going as far as they used to.

Underlying the squeeze on households from inflation, real wages will fall by 0.5 per cent this year, according to BOE's new forecast. "The most striking thing is that they have downgraded the outlook for wages despite lower-than-expected unemployment, and the inflation profile is a bit lower, despite a weaker pound".

The British currency has fallen around 0.4 percent as a reaction to the announcement.

The pound hit a nine-month low against the euro and fell by more than a cent against the USA dollar. The three dissenting policymakers felt that an immediate rate hike was necessary given the level of inflation and the economy's Brexit resilience.

Rate-setters at the Bank of England kept all their main policy settings unchanged on Thursday, as expected.

On the other hand, business expectations for the future have remained somewhat weak in the wake of political and economic uncertainty surrounding Brexit - with the latest reading printing at the lowest it's been since the end of 2012.

"The market's reaction was swift: the pound fell sharply and this helped to boost the FTSE 100", he said.

"The UK economy is faltering and consumer purses are under pressure, so it's no surprise the BoE has decided not to upset the applecart by raising interest rates", Hargreaves Lansdown senior analyst, Laith Khalaf, said. Markets have all-but priced out a rate hike today but recent moves in sterling and United Kingdom yields suggest traders are not convinced that the BoE will hold off too much longer.

The dollar inched away from a 15-month low versus a basket of six currencies, but was still looking wobbly due to doubts about whether there will be another US interest rate rise this year.

While in its last set of minutes the Bank said that its forecasts were "conditioned on the assumption that the adjustment to the UK's new relationship with the European Union is smooth", this time it said that the "projections assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment". It remains within touching distance of an 18-month high of 0.55 percent hit in mid-July, and double levels seen early on June 27.

Earlier, a purchasing managers' index (PMI) survey showed the UK's service sector grew at a faster pace in July than analysts forecast which came as a relief to those anxious about Britain's economic slowdown. The two members who continued to vote for a rate rise were external members Michael Saunders and Ian McCafferty.