Bank of England keeps rates at record low as economy slows

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With only a month until a national election, the BoE said the short-term squeeze on households from inflation since June's Brexit vote would be more severe than it predicted in February, with price growth peaking at over 2.8 per cent late this year.

The Bank of England's top economists have voted to keep interest rates on hold as expected, but a warning that falling real wages for British consumers will hold back the economy more than previously expected pushed sterling slower.

Since then, markets have moved to price an earlier rate hike by the Bank of England and sterling has strengthened, which should help to push down on inflation.

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"Wage growth remains subdued", the Bank of England said in its quarterly inflation report.

"What does that mean?"

"In order to precisely answer that question, we would have had to do an alternative forecast, as you can appreciate, with some variant of a disorderly negotiating process". The Governor will most likely argue that effects are transitory as the central bank is loathe to tighten monetary policy amidst stagnant wage growth.

"There had also been evidence of a slowing housing market activity and prices, which, in the past had been accompanied by a softening in consumption growth", the minutes said. This followed German Chancellor Angela Merkel reportedly convincing Trump in March that a trade deal with the European Union would be far more advantageous for the USA than one with a post-Brexit UK.

Minutes of the rates meeting showed seven MPC members voted to keep rates unchanged, while outgoing policymaker Kristin Forbes remained the sole dissenter, repeating her call for a rise to 0.5% on worries over rising inflation.

Calum Bennie of Scottish Friendly said: "It's positive news for homeowners but cash savers must feel there's no end in sight for the dire returns they're getting". That, in turn, is weighing on consumer spending this year.

The central bank trimmed its forecast of growth this year to 1.9 per cent from 2.0 per cent, but nudged up its forecasts for 2018 and 2019 to 1.7 per cent and 1.8 per cent.

Although the Bank expects United Kingdom growth in 2017 to be slightly lower than previously expected at 1.9% (down from 2%), its projections for 2018 and 2019 have been raised by 0.1 percentage point to 1.7% and 1.8%, respectively.

The Bank said growth would be supported by a recent recovery in business investment and higher exports amid a bounce-back in the global economy.

The report, released alongside the rates decision, also offered some cheer for the growth outlook as forecasts were raised to 1.7% for 2018 and 1.8% in 2019 from February's prediction for 1.6% and 1.7% respectively.

"But any instinct he might have to raise interest rates to rein in inflation is being kept firmly in check by the Bank's unwritten commandment - "thou shalt not jeopardise growth".

"If the chance of a transitional deal does begin to materialize, it might well be that the Bank of England brings forward the point at which it raises interest rates, but at the moment, that does not appear to be on the cards".

This did little to convince analysts however, many of whom forecast that the BoE will leave interest rates at their current levels for the foreseeable future, especially as Carney warned that any future hikes would be reliant upon a "smooth" Brexit, something that looks increasingly unlikely due to Theresa May's apparent hard-line stance on negotiations.