- ForexTime Research
The Bank of England kept interest rates on hold at 0.5% and warned that the UK's exit from the European Union would create uncertainty and likely hurt the British economy in the short term. The decision was unanimous. Former dissenter Ian McCafferty, who had insisted on a 25 basis point increase at every meeting between August and January, voted with the other eight rate setters for a third month in a row to keep the key rate unchanged. Experts are now expecting rates to stay at 0.5% until 2017, with some predicting a rate increase to come sooner if Britain votes to stay in the EU.
The central bank sees GDP growth at a mature 0.5% pace in both the first and second quarter of this year. The economic outlook has deteriorated since the beginning of the year due to worries about a slowdown in China, the world's second largest economy, and as oil and commodity prices remained under pressure. At the same time, the labour market remains tight, with the unemployment rate staying at a decade-low of 5.1% in the three months through January. The BoE sees some downside risk to labour market stemming from an expected near-term slowdown in GDP. BoE policymakers expect a drop in the inflation rate in April as the Easter impact unwinds.
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