Pound slumps after Bank of England kills rate hike hopes

Reuters

CPI inflation was 2.6 percent in June, having risen from 0.5 percent in May previous year following the fall in sterling against other currencies.

The MPC says it expects inflation to rise in the next few months, peaking at around 3% in October.

She said: "Uncertainties around the Brexit transition and future UK/EU trading relationships make future interest rates movements less easy to anticipate at present, but this should not discourage businesses and households from preparing for a future with higher rates".

For 2018, the BoE also revised its growth forecast slightly downward from 1.7% in May, to 1.6% on Thursday. Some will point to this as evidence that Brexit is taking its toll on the United Kingdom economy.

Badiani said he thought the BOE will remain tolerant of inflation above its monetary policy target of 2 percent. Despite the decision not deviating from expectations, sterling suffered sizable losses relative to majors including the dollar and the euro as the Bank lowered its forecasts for growth in the current and following years.

And he added that if the Brexit process does not go smoothly, it could pose further challenges to the economic picture.

Economists believe the Bank's Monetary Policy Committee (MPC) will keep rates at 0.25%, despite three out of eight policymakers calling for an increase to 0.5% last month and amid conflicting public pronouncements in recent weeks.

He said that investment had been weaker than otherwise would have been expected "in a very strong world" and the effect of that was starting to build: "The speed limit of the economy, if you will, has slowed".

The MPC forecast two rate hikes over the next three years, with the first not until the third quarter of 2018.

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Broadbent also said that while uncertainty is weighing on the economy, people are "holding their nerve".

But he said the United Kingdom was "a little bit" better placed to cope with an interest rate rise.

Although Mark Carney has earned a reputation for doom-mongering over Brexit, today's Bank of England press conference wasn't all gloom.

"As a outcome, the household saving ratio fell from 3.3% to 1.7%, its lowest level since the series began in 1963".

The new Bank of England forecasts reflect the deterioration of the economic outlook since May as faster inflation outpaces wage gains, holding back consumer spending.

At the end of June he sounded concerned about inflation and said the bank would tolerate above target inflation over the long term.

2017 Growth forecasts have been reduced again from 1.9% to 1.7% with lower household demand filtering through from the drop in the value of the Pound squeezing prices and household budgets.

The vote was 6-2 for no change, with Michael Saunders and Ian McCafferty voting in favour of a rate hike.

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