Sterling tumbles as BoE keeps rates on hold, cuts growth forecasts

Sterling tumbles as BoE keeps rates on hold, cuts growth forecasts

GBP/USD remains on the lower ground, around 1.3150. Then, as now, inflation was outpacing the bank's 2 percent target, averaging 2.6 percent between the two meetings.

Economists expect the Bank to downgrade its growth forecasts when it releases its quarterly inflation report following a slump in consumer confidence and a string of weak economic data, further diminishing the chances of a hike.

Bank governor Mark Carney said: "We're going through a sluggish period in the economy".

However while the last two quarters have certainly seen a dip in growth, overall economic performance has been better than expected since the European Union referendum, particularly in light of some of the dire forecasts that preceded the vote.

In a statement, the committee forecast weak sterling would continue to boost consumer prices without "adverse consequences for inflation expectations" and that pay growth would pick up after several more months of modest increases.

Longworth, who resigned from the British Chamber of Commerce (BCC) to serve as Chairman of the Vote Leave Business Council before the Brexit vote, said that membership of the single market was stopping the UK Government from growing the economy. The drugmaker upgraded its earnings forecast and said it was exploring options for its hyperactive drugs business, including a listing.

On the Brexit front, Carney said that uncertainty over the UK-EU future relationship is weighing on business investment and household spending, adding that the level of investment in the economy is now expected to be 20% lower than the Bank anticipated before the vote to leave the EU.

Caxton FX Currency Markets Analyst told the Daily Star Online: "Sterling fell against the euro and the dollar as the MPC voted 6-2 to keep rates on hold".

Prospects for an interest rate rise had appeared to be gaining ground at the Bank, after Haldane's comments were followed by a shift to a more hawkish tone from governor Mark Carney. However, it has signalled the end of the Term Funding Scheme, created to make cheap money available to banks. The closure of the scheme will come in February 2018, the MPC announced, in line with its previous plans to give six months' notice. Inflation was broadly unchanged, but wage inflation was revised sharply lower, the BOE now expects real wages to fall by 0.5% this year, suggesting that the BOE (along with other global central banks) still haven't figured out how to fix the problem of low unemployment but stagnant wages. Again, the Bank has tweaked its expectations on inflation. We can therefore expect plenty of interest around these releases, particularly as labour market aside, the data this year hasn't blown anyone away.

Currently, inflation is running at 2.6%, while wage growth is just above 2%, meaning that regular Brits are now bringing in less in wages than prices are growing, effectively lowering their real incomes.

The BOE has revised down its 2017 growth projections, to 1.7 percent from 1.9 percent in May, saying the United Kingdom economy will remain "sluggish".

Related Articles