The Bank of England voted to keep base interest rates on hold for another month, surprising many market analysts who had expected to see a quarter percent rise.
Ben Broadbent, the BoE Deputy Governor, said that the decision had been entirely straightforward, as the board agreed that it was wise to take a cautious approach and see whether the economic weakness identified in quarter one was a temporary dip. Figures showed that Britain’s economy had only risen by 0.1% in January to March.
Speaking to the BBC, Mr Broadbent said that it was always sensible for monetary policymakers to take a cautious view and to assess whether the economy will show a bounce-back in quarter two.
Interest rates are now steady at 0.5%, despite the market waiting to see a rise. The economic slowdown was believed to be because of the prolonged bad weather in the early part of this year, which had a significant dampening effect on construction industry, retail and hospitality industry figures.
Lowered Growth Forecasts
The Bank of England also lowered its annual growth forecast down to 1.4%, from the February forecast of 1.8%.
Mark Carney, the Bank governor, said that he did expect rates to rise later this year. In a press conference held after the latest interest rates decision, he said that the underlying rates of economic growth for Britain were still more resilient than initial data might suggest. The markets now believe that the first interest rate rise will happen this winter, with a second next year and a third in 2020.
Were the BoE to increase rates, around 4 million mortgage holders on tracker or variable rate deals would see their monthly repayments increase. Over 45 million savers would see the benefit if banks passed on the increase to their accounts.
Rise Postponed, Not Cancelled
Chief Economist of Fitch Ratings, Brian Coulton, said that it appeared that the predicted rate increase for this year had merely been postponed, rather than entirely cancelled.
At the MPC meeting, the decision to keep rates steady was made at seven members to two. Michael Saunders and Ian McCafferty voted to see a rate increase.