The UK interest rate is to remain unchanged. The UK pound dropped to its lowest level for nine months against the Euro on Thursday. Part of the reason for this was the 6-2 vote by the Bank of England to maintain the UK interest rate at its current record low of 0.25%. Growth and inflation forecasts were also lowered.
Mark Carney, the Governor of the Bank of England, stated that the cost of borrowing might be raised more than expected over the next three years. In fact, this could be within a year. In May, the BoE had forecast a 1.9% growth for 2017, but today revised that to 1.7%. Its projection for inflation over the next year was cut to 2.6%. This was unexpected after a high of approximately 3% in October.
Following this announcement, Mark Carney’s press conference comments led to the pound falling to the lowest rate since November to just £0.9013/Euro. His comments related to an expected less than average level of business investment. This would in turn lead to low productivity and a low rate of wage growth. The pound also dropped against the dollar by one cent: to a 3-day low of $1.3140.
The 6-2 vote was surprising to analysts who had expected at least 3 votes for an interest rate increase. However, uncertainty regarding Brexit is probably likely for the voting. Although recent market figures had made a rate increase unlikely, the effect of Brexit on the economy was an issue.
Other negative aspects included sluggish economy in the first six months of 2017. Low wage growth and low inflation were also relevant factors.
The outlook looks bleak for an interest rate hike this year. The relatively unknown effect of Brexit negotiations on UK business and exports makes rate forecasts almost impossible to call. Add to that wage growth issues, and it seems highly unlikely that the UK interest rate will change at all in 2017. The divorce between the UK and the EU may not be as amicable as at first expected – or hoped for!
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