Bank of England likely to delay rate hike as economy slows

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The blue-chip index has been little changed after the BoE kept rates unchanged, while noting that "an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon".

Investors appear unclear as to what's likely to happen next.

The rate has now changed just twice since March 2009 when it was lowered to a then record low of 0.5 percent in the wake of the financial crisis.

According to Reuters, "Britain's economy grew more slowly than most of its peers past year after a Brexit-driven jump in inflation hit consumer spending power and some businesses delayed long-term investment".

But late last month, data started to raise doubts. In the Inflation Report, the BoE now sees inflation lower in the near to medium-term. For now, most policymakers wanted to wait to be sure that the weakness passes quickly.

"There was value in seeing how the data unfolded over the coming months, to discern whether the softness in Q1 might persist", they said.

The Bank's stance leaves the door open for... Quilter Multi-Asset portfolio manager and head of investment, Anthony Gillham, said: "Just a few weeks ago a rate rise was seen as close to certain, with 90% of the market predicting a hike".

Economists had previously expected two rises in 2018 after the Bank's February forecasts, when Governor Mark Carney said rates would need to rise further and faster to rein in inflation.

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But the bank's caution is not expected to last indefinitely.

James Smith at ING said the approach of crunch negotiations about Britain's post-Brexit trade deal with the European Union could make it hard for the BoE to raise rates later this year. But slowing consumer lending and a sluggish housing market created greater-than-usual uncertainty about consumer demand, the BoE said.

The Bank of England (BoE) has downgraded its predictions for inflation and economic growth in Q2, as the prospects for the United Kingdom economy remain "clouded by Brexit uncertainty".

The Bank has described recent disappointing economic data as a "temporary soft patch", implying rates will rise in the fullness of time (with interest rates near an all time low, this is one of the safest of bets and only a question of timing).

The MPC forecast GDP growth averaging 1.75 percent for each of the years up to 2020.

On growth, the BoE said "very little spare capacity remains in the economy", which grew only 0.1% in the first quarter, down from 0.4% in the fourth quarter of 2017, hampered by poor weather.

In November, the BoE raised rates for the first time in over a decade, reversing a cut made shortly after the Brexit vote.

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