Bank of England keeps rates on hold and upgrades growth forecast

The Bank of England will deliver its latest verdict on interest rates and the economy on Thursday, as United Kingdom growth continues to defy expectations of a Brexit vote slowdown.

Given the downside risks to growth and upside risks to inflation that Brexit is creating, ING Bank economist James Knightley forecasts no change in Bank Rate until 2019. Now what it regarded as an emergency has passed, why are rates still at a record low?

The UK economy is expected to grow two percent this year, compared with a November forecast of 1.4 percent. The BoE said monetary policy could respond in either direction to changes in the economic outlook.

BoE Governor Mark Carney and his fellow policymakers were wrong-footed by the resilience of Britain’s economy past year following the referendum decision in June to take the country out of the European Union.

He said that Brexit was no longer the biggest risk we face.

The bank said it now expects gross domestic product to rise by 2% in 2017, an upgrade from the 1.4% it forecast in its November inflation report.

Minutes of the latest Monetary Policy Committee (MPC) decision showed policymakers voted unanimously to keep United Kingdom rates on hold at 0.25 per cent as the bank made sweeping upgrades to its growth outlook.

Since then, Britain’s consumers have carried on spending and finance minister Philip Hammond has relaxed the country’s austerity drive.

In the minutes of the meeting, the Bank said that it expects inflation to rise “markedly” above the 2% target over the coming months as a result of the weakness in the pound.

“However, given major uncertainties over the United Kingdom economic outlook as Brexit gets underway and develops, nothing can be ruled out”.

The BOE left policy unchanged Thursday, as expected, with rates remaining at 0.25%. The Committee also voted unanimously to maintain the stock of United Kingdom government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

The Bank has been criticised for being too gloomy when it drastically cut its growth forecast after June’s vote in favour of Brexit.

So are we likely to see interest rates rise in the near future?

But he added any hike is still not likely until the end of 2019.

The bank decided Thursday to maintain its inflation forecast for 2017 at 2.7 percent.

In his press conference, Governor Carney also noted that ongoing Brexit uncertainties are having a material effect on investment decisions and that the true effects of the United Kingdom leaving the European Union will not be felt until after the central bank’s projection periods.