Bank of England keeps policy rate at 0.5 pct

7-2 BoE vote to hold Bank Rate

Bank keeps rates on hold as fears grow of May hike

The Bank of England, as predicted by City analysts, left United Kingdom interest rates on hold 0.5% today.

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The report also confirmed the bank's view that "ongoing tightening of monetary policy" would be needed to bring inflation back to its 2% target.

It added that any future rate rises will be "at a gradual pace and to a limited extent".

Ian McCafferty and Michael Saunders - who were the first officials to call for rates to rise in 2017 - said it was now time for rates to increase again for only the second time since the 2008 financial crisis.

Michael Hewson, chief analyst at CMC Markets, said Wednesday's better than expected wages growth and unemployment data "shifted the calculus on a possible move on United Kingdom rates to the May meeting".

If Carney and other policymakers are gung-ho about the United Kingdom economy in their forward guidance then the Pound US Dollar (GBP/USD) exchange rate could extend its lead. Inflation is expected to ease further in the short term although to remain above the 2% target.

However those slipping inflation figures were more or less brushed aside by chief economic adviser to the EY ITEM Club Howard Archer.

This, as well as the bank's meeting minutes revealing that the bank plans to hike United Kingdom interest rates in the coming months, has made investors even more confident that the BoE will hold an interest rate hike in May. As they clearly have.

The pound extended its overnight rally and rose to a near seven-week high of $1.4171.

A more hawkish path from the Fed is expected over the next couple of years after the Federal Open Markets Committee voted unanimously to raise the Federal Funds target range from 1.25%-1.5% to the 1.5%-1.75% band, in light of a strengthening economic outlook in recent months. The transition period is expected to last until the end of 2020. Real wage growth looks on course to creep back into positive territory in the coming months after average wage growth excluding bonus ticked up to 2.6% in January. And while fourth-quarter GDP was revised down the ONS claims the United Kingdom economy grew 1.7% during 2017 (though this is well below the long-term historical United Kingdom average).

Britain's vote in June 2016 stoked inflation as the ensuing drop in the value of the pound raised the price of imported goods.

Economic optimism has also gained a boost after Brexit negotiators reached a breakthrough this week on securing a transition deal once the United Kingdom quits the European Union next year. Adding more support, the UK services sector - which carries around 80% of total UK GDP - hit a four-month industry high in February, according to the latest purchasing managers' index.

The Bank said these policymakers believed a "modest tightening of monetary policy at this meeting could mitigate the risks from a more sustained period of above-target inflation that might ultimately necessitate a more abrupt change in policy and hence a greater adjustment in growth and employment".

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