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Bank of England slashes growth forecast and leaves interest rates unchanged - business live Bank of England slashes growth forecast and leaves interest rates unchanged - business live
(32 minutes later)
Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, believes there’s no chance of a UK interest rate rise until the next Brexit deadline.
“With Brexit unresolved, it is now practically inconceivable that there will be a rate hike between now and October, despite GDP growth being close to potential. MPC members have been doing the rounds of late, making hawkish comments and it’s easy to see why. The labour market is tight and prices are rising in sectors sensitive to the output gap, but – for now – this is being outweighed by weak goods inflation. With headline CPI on target, that’s a decision for another day.
“UK businesses continue to be haunted by the looming Brexit deadline of October 31st and the spectre of uncertainty is weighing on activity. Even if a No Deal exit is averted for now, the cost of delay will mount if negotiations are extended once again. Consumers may receive some respite; above inflation earnings growth and continued low interest rates mean UK households have a bit more spending power, which is supporting the economy. With the end of Carney’s tenure on the horizon, a rate rise might be an issue for his successor to grapple with.”
With summer holidays looming, the Bank’s gloomy forecasts haven’t helped families planning a trip across the Channel.With summer holidays looming, the Bank’s gloomy forecasts haven’t helped families planning a trip across the Channel.
Sterling has dropped by almost half a euro cent to €1.121, wiping out all yesterday’s rally.Sterling has dropped by almost half a euro cent to €1.121, wiping out all yesterday’s rally.
The pound is also surrendering some of its early gains against the US dollar, and is now back below $1.27.The pound is also surrendering some of its early gains against the US dollar, and is now back below $1.27.
Bad news for workers: the Bank of England’s economists reckon that UK earnings growth “might have levelled off”.Bad news for workers: the Bank of England’s economists reckon that UK earnings growth “might have levelled off”.
Better news: They also predict that inflation (which fell to 2% last month) will fall further in the coming months.Better news: They also predict that inflation (which fell to 2% last month) will fall further in the coming months.
The nine policymakers on the Bank’s Monetary Policy Committee were unanimous this month.The nine policymakers on the Bank’s Monetary Policy Committee were unanimous this month.
They all agreed to leave interest rates at 0.75%, and still collectively agree that (should Brexit go smoothly) it makes sense to raise interest rates over the next couple of years.They all agreed to leave interest rates at 0.75%, and still collectively agree that (should Brexit go smoothly) it makes sense to raise interest rates over the next couple of years.
The minutes say:The minutes say:
All members judged at this meeting that the existing stance of monetary policy was appropriate.All members judged at this meeting that the existing stance of monetary policy was appropriate.
The Committee continued to judge that, were the economy to develop broadly in line with its May Inflation Report projections that included an assumption of a smooth Brexit, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.The Committee continued to judge that, were the economy to develop broadly in line with its May Inflation Report projections that included an assumption of a smooth Brexit, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.
With Brexit now delayed until (at least) 31 October, the Bank of England fears that businesses will keep sitting on their hands rather than buy new equipment and machinery.With Brexit now delayed until (at least) 31 October, the Bank of England fears that businesses will keep sitting on their hands rather than buy new equipment and machinery.
The minutes of today’s meeting state:The minutes of today’s meeting state:
The underlying pattern of relatively strong household consumption growth but weak business investment had persisted.The underlying pattern of relatively strong household consumption growth but weak business investment had persisted.
Surveys suggested that companies expected uncertainty to persist at elevated levels, and there were no clear signs that investment growth would pick up ahead of the October Brexit deadline.Surveys suggested that companies expected uncertainty to persist at elevated levels, and there were no clear signs that investment growth would pick up ahead of the October Brexit deadline.
The Bank also points to the recent shutdowns in the car industry (as manufacturers braced for a no-deal Brexit that never came).The Bank also points to the recent shutdowns in the car industry (as manufacturers braced for a no-deal Brexit that never came).
It hopes that car production will accelerate over the summer:It hopes that car production will accelerate over the summer:
Weakness in motor vehicle production, related to some car manufacturers’ Brexit contingency plans, was likely to push down on Q2 GDP growth, but push up on Q3 growthWeakness in motor vehicle production, related to some car manufacturers’ Brexit contingency plans, was likely to push down on Q2 GDP growth, but push up on Q3 growth
The Bank has cut its growth forecasts due to the damage caused by Brexit worries, the unwinding of stockpiling, and by the trade conflict between the US and China.The Bank has cut its growth forecasts due to the damage caused by Brexit worries, the unwinding of stockpiling, and by the trade conflict between the US and China.
In a statement, it says:In a statement, it says:
Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen. Trade concerns have contributed to volatility in global equity prices and corporate bond spreads, as well as falls in industrial metals prices. Forward interest rates in major economies have fallen materially further. Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate.Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen. Trade concerns have contributed to volatility in global equity prices and corporate bond spreads, as well as falls in industrial metals prices. Forward interest rates in major economies have fallen materially further. Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate.
As expected, recent UK data have been volatile, in large part due to Brexit-related effects on financial markets and businesses. After growing by 0.5% in 2019 Q1, GDP is now expected to be flat in Q2.As expected, recent UK data have been volatile, in large part due to Brexit-related effects on financial markets and businesses. After growing by 0.5% in 2019 Q1, GDP is now expected to be flat in Q2.
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.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.
Ouch! The Bank of England has also lowered its growth forecast for the second quarter of 2019, to zero.Ouch! The Bank of England has also lowered its growth forecast for the second quarter of 2019, to zero.
It had previously forecast 0.2% growth in April-June.It had previously forecast 0.2% growth in April-June.
Breaking! The Bank of England has voted to leave UK interest rate on hold at 0.75%.Breaking! The Bank of England has voted to leave UK interest rate on hold at 0.75%.
More to follow...More to follow...
It’s nearly time for the main news of the day - the Bank of England’s monetary policy decision.It’s nearly time for the main news of the day - the Bank of England’s monetary policy decision.
The City is confident that the BoE will leave interest rates on hold today, at 0.75%. It probably won’t make any changes to its quantitative easing programme either (which holds £435bn of mainly UK government bonds).The City is confident that the BoE will leave interest rates on hold today, at 0.75%. It probably won’t make any changes to its quantitative easing programme either (which holds £435bn of mainly UK government bonds).
But investors want to hear the Bank’s views on Brexit, the state of the UK economy, and whether any policymakers are leaning towards an interest rate rise, or even a cut (just as America’s Federal Reserve prepares to start cutting).But investors want to hear the Bank’s views on Brexit, the state of the UK economy, and whether any policymakers are leaning towards an interest rate rise, or even a cut (just as America’s Federal Reserve prepares to start cutting).
Sam Cooper, Vice President of Market Risk Solutions at Silicon Valley Bank, sets the scene:Sam Cooper, Vice President of Market Risk Solutions at Silicon Valley Bank, sets the scene:
“Market attention turns to the bank of England in this week’s central bank relay.“Market attention turns to the bank of England in this week’s central bank relay.
Participants will be searching for clues from the MPC as to the future path of monetary policy, with retail sales disappointing and inflation running on target, the case for the Bank of England to follow the lead from its US counterpart is gradually building.Participants will be searching for clues from the MPC as to the future path of monetary policy, with retail sales disappointing and inflation running on target, the case for the Bank of England to follow the lead from its US counterpart is gradually building.
While sterling enjoys some welcome respite after last night’s dovish hold from the Fed, any dissent within the committee in favour of an interest rate cut or reference to more accommodative policy in the statement could see the pound quickly reverse its recent bout of strength against the dollar.”While sterling enjoys some welcome respite after last night’s dovish hold from the Fed, any dissent within the committee in favour of an interest rate cut or reference to more accommodative policy in the statement could see the pound quickly reverse its recent bout of strength against the dollar.”
Iran’s threat of ‘consequences’ against America will fuel fears of military conflict in the Gulf region.Iran’s threat of ‘consequences’ against America will fuel fears of military conflict in the Gulf region.
The Strait of Hormuz handles around 20% of the world’s oil (tankers from Qatar, Kuwait, the UAE and Saudi Arabia’s east coast all pass through on their way to the rest of the world)The Strait of Hormuz handles around 20% of the world’s oil (tankers from Qatar, Kuwait, the UAE and Saudi Arabia’s east coast all pass through on their way to the rest of the world)
Economist Alastair Ross suggests markets are taking the drone shooting quite well:Economist Alastair Ross suggests markets are taking the drone shooting quite well:
Oil markets seem remarkably unfazed by fireworks in the Gulf, with prices blipping up by just a couple of percent after US drone is downed.ref https://t.co/7xY8CevIDb #oilandgas #iran #geopolitics pic.twitter.com/U7238QkROmOil markets seem remarkably unfazed by fireworks in the Gulf, with prices blipping up by just a couple of percent after US drone is downed.ref https://t.co/7xY8CevIDb #oilandgas #iran #geopolitics pic.twitter.com/U7238QkROm
However, that could change if America takes a robust response to this latest incident (Donald Trump hasn’t tweeted yet today....)However, that could change if America takes a robust response to this latest incident (Donald Trump hasn’t tweeted yet today....)
Iran’s foreign ministry has now weighed in, criticising America for illegally (it claims) violating its airspace.Iran’s foreign ministry has now weighed in, criticising America for illegally (it claims) violating its airspace.
Ministry spokesman Abbas Mousavi says:Ministry spokesman Abbas Mousavi says:
“Any such violations of Iran’s borders are strongly condemned ... We warn of the consequences of such illegal and provocative measures.”“Any such violations of Iran’s borders are strongly condemned ... We warn of the consequences of such illegal and provocative measures.”