Pound dips after Bank of England holds rates

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The Monetary Policy Committee (MPC) voted 7-2 to keep rates on hold at 0.5% following the shock slowdown in growth to 0.1% in the first quarter, as the impact of the Beast from the East compounded woes in consumer and construction sectors.

The Pound fell like a knife on Thursday after the release of the Bank of England (BOE) inflation report which slashed its latest GDP growth forecasts for the second quarter of 2018 from 1.8% to 1.4%.

The BoE left interest rates on hold at 0.5 percent in its May policy meeting.

The inflation report also showed that about a one-quarter-point hike a year will be needed to return inflation to the goal after the first increase in a decade last November.

Whilst the Bank of England (BoE) did not have early access to today's data, it could still effect the sentiment of Bank Governor Mark Carney in his later press conference and indeed the outlook moving forward.

Just a month ago a rate hike to 0.75% seemed a near certainty, but poor United Kingdom economic data all but killed the chance of rates increasing.

Five-year British government bond yields GB5YT=RR, sensitive to expectations for BoE rates, slid nearly seven basis points after the decision to approach a three month low, and last stood at 1.13 percent, down four basis points on the day.

"We therefore continue to forecast the Bank of England to make their move to 0.75% in August, but due to the reinstatement of data dependency into its policy reaction function, we don't expect the ride to this hike to be smooth".

"At this meeting, the costs to waiting for additional information were likely to be modest", minutes from the meeting said.




"So yet again we have to digest another change of tack from Bank of England policymakers", said Michael Hewson, chief market analyst at CMC Markets.

Uncertainty over Brexit likely swayed bank committee.

In early afternoon London trading, the pound was 0.3 percent lower at $1.3511.

Pound to Euro (GBP/EUR) Exchange Rate Forecast: Will Sterling Fall Further on BoE Interest Rate Freeze?

He said the bank wanted to see a growth pick-up in coming months before raising borrowing costs.

Any future rate hike will be "gradual and limited" as Brexit-related uncertainties weigh.

Practically, this largely involves the Bank adjusting interest rates to try and keep inflation at, or as close to, a target of 2%.

But the Bank's quarterly forecasts revealed there was some doubt around the underlying economic picture in the United Kingdom, noting "greater-than-usual uncertainty" over consumer spending.

Among mid-caps, Superdry plummeted more than 19 percent after the fashion retailer said it expected 2018 full-year gross margins to decline and it gave a weaker than expected revenue forecast for 2019.

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