- Howard Archer, chief UK and European economist at IHS Global Insight
The Bank of England decided to keep its benchmark interest rate at 0.5%, unchanged at the lowest level since 2009. All of the nine MPC's members voted unanimously to hold the UK interest rate in order to wait for recovery rebound. The decision was made mainly due to inflation rate in Britain that turned negative in April and came in at -0.1%, taken down in large part by the declines in oil prices. The officials of the central bank led by Mark Carney expect annual inflation to come back to 2% target by the beginning of 2017.
The decision to hold rates was also supported by the data, that showed growth of the British economy in the first quarter of 2015 slowed to 0.3%, the worst since 2012, which disappointed the markets. Nevertheless, the UK grew at the fastest pace among the group of seven leading industrial nations in 2014. Survey data this week suggested that growth has picked up in the second quarter of the year, albeit not as quickly as BoE's policymakers predicted. In the meantime, a separate release earlier in the week showed the British major services sector plunged in May, signalizing that the recovery from the weak Q1 could be slower than expected. Investors expect the BoE to raise the borrowing costs slowly and gradually, starting in the first half of 2016.
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