Brexit uncertainty has trumped inflation concerns in the latest Bank of England monetary policy committee, which has voted to hold rates at 0.25 per cent.
However, three hawks voted for a rate rise in contrast to previous meetings with Kristin Forbes, who is departing next month, has been the only dissenting vote.
Corporate bond purchases stock will remain at £10bn, while UK government bond purchases stay at £435bn.
“The high inflationary environment has not been enough to force Carney’s hand on interest rates, but in the shadow of monetary normalisation in the US, pressure is mounting for the monetary policy committee to follow suit,” says Nick Dixon, investment director at Aegon.
“Slowing wage growth and increasing cost pressures are also starting to take their toll on workers in every sector and, in an economy highly reliant on consumer spending, the Bank of England will be keen to keep inflation at manageable levels.”
Retail figures released today suggest consumers are starting to feel the pinch from inflation as retail volumes fell sharper than expected in May to -1.2 per cent.
“Much of the economic outlook hinges on Brexit negotiations, where the prospect of a softer exit from the EU could relieve some market pressure in the medium term. Sterling could consequently start to look more stable, giving the Bank of England some breathing room to pull forward a decision to raise interest rates later in the year.”
Aberdeen Asset Management senior investment manager Luke Hickmore says: “Having rates this low is not a good position to be going into a period of so much uncertainty. It gives the Bank of England very little fire power should the economy turn.
“Mr Carney might come to regret having not raised rates when it became clear that last year’s EU referendum hadn’t hurt the economy. A passive Bank of England is not good for anyone. Now we’ve got a hung parliament on the dawn of Brexit negotiations and data suggesting that the economy is slowing. The hard yards for Mr Carney could be ahead.”
Across the Atlantic, the US Fed rose rates by 25bp to 1.25 per cent at its FOMC meeting that concluded on Wednesday.
Dickie Hodges, head of unconstrained fixed income at Nomura, says the central bank had to act so they can cut rates again when US growth slows down in 2018 or 2019.