Bank of England keeps interest rates unchanged

The Bank of England held the UK's benchmark interest rate at 0.25% at the conclusion of its latest Monetary Policy Committee (MPC) meeting on Thursday (16 March).

MPC members voted 8-1 in favour of keeping the interest rates unchanged, with Kristin Forbes the only dissenter.

The benchmark rate had been stable at 0.5% from March 2009 to August 2016, when the MPC decided to reduce it by 25 basis points that month, in the wake of dire survey data following the Brexit vote.

The holding pattern was supplemented yet again by a decision to maintain the central bank's asset purchase programme at £435bn ($547.6bn) which was in line with market expectations.

The Committee added it expects a slowdown in aggregate demand over the course of this year, as household demand growth declines in reaction to lower real income growth.

Retail sales have weakened in line with expectation, although other indicators of consumer demand such as consumer confidence have been steadier than expected.

The latest inflation report showed the consumer price index hit a two-year high of 1.8% and is expected to surpass the BoE's 2% target this year. The Bank reiterated it might have to act should inflation overshoot its margins of tolerance.

"As the committee has previously noted, there are limits to the extent that above-target inflation can be tolerated," the Bank said.

"The continuing suitability of the current policy stance depends on the trade-off between above-target inflation and slack in the economy."

However, with Forbes set to leave the MPC in June, analysts warned against expecting any immediate change to the Bank's stance.

"Given the considerable degree of uncertainty surrounding the economic outlook, it still seems unlikely that the MPC will follow the US Fed and raise rates anytime soon," said Ruth Gregory, UK economist at Capital Economics. "A rate rise towards the end of 2018 seems more likely to us – provided that growth remains relatively resilient as we expect."

Laith Khalaf, senior analyst at Hargreaves Lansdown, added: "The Bank of England is showing no signs of blinking in the course it has charted for monetary policy. Inflation may be starting to rise, but interest rates are staying put for the foreseeable future, which is going to cause further pain for cash savers.

"Households face a currency crunch this year, as weaker sterling feeds through into consumer prices, pushing up the cost of living, while pay growth still looks anaemic."

Delivering the last-ever Spring Budget, Chancellor Philip Hammond highlighted the Office for Budget Responsibility (OBR) had revised its forecast for the UK economy, which will now expand at a 2% rate this year, compared with an initial guideline of 1.4%.

However, growth will slow to 1.6% in 2018, compared with a previous forecast of 1.7%, before picking up to 1.7% in 2019 and 1.9% and 2% respectively in the two years thereafter. While the updated forecast paints a brighter present, the medium-term future is slightly bleaker, given the OBR had originally expected Britain's GDP to grow 2.1% in 2019 and 2020.

The economic forecast for 2021, however, remained unchanged.