boe surprises no one by keeping bank rate unchanged
Last Updated : GMT 16:22:18
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BoE surprises no one by keeping bank rate unchanged

Arab Today, arab today

Arab Today, arab today BoE surprises no one by keeping bank rate unchanged

The Bank of England
London - XINHUA

The decision by the British central bank the Bank of England to hold interest rates at 0.5 percent came as no surprise, and attention will now focus on data and sentiment reports over the next few months as markets and businesses explore when rate rise will come.
The British economy has grown faster and at a higher rate than anyone expected at the end of 2012, when economists were describing a potential triple-dip recession.
They were wrong about that, partly because the second dip was wiped out by an upward revision in GDP figures, but they were also wrongfooted by the unexpected 1.7 percent growth in GDP in 2013.
The BOE is forecasting 3.4 percent growth for this year, strongly ahead of long-term trend which is about 2-2.5 percent, and could yet see that figure overhauled by reality after the first quarter printed 0.8 percent quarter-on-quarter growth.
In the past growth like that would have indicated an imminent rate rise, but the BOE is operating in extraordinary times and has been for the past five years since it anchored the Bank Rate at an historical low of 0.56 percent in order to stimulate the economy as it reeled under the blows from the financial crisis.
Governor Mark Carney has hinted at a rise in the first quarter of 2015 in his June Mansion House speech, only to hint a fortnight later at a rise in the final months of this year.
The BOE deeply wants a way back to 'normality, a route map out of the world of extraordinary measures.
CONSUMER SPENDING
But it fears that even a raise of 0.25 percent could scare the markets, and put a squeeze consumer spending.
And it is consumer spending which is the current driver of the recovery. Household savings were 6.2 percent a year ago, and have fallen to 4.9 percent in the first quarter of this year. They have likely fallen further, indicating householders are continuing to dip into their savings to buy stuff.
That cannot continue. And the hopes that the British economic recovery could be driven by increased exports were left on hold as 0bThe UK deficit on trade in goods and services widened again in May.
Figures released Thursday showed the deficit was 2.4 billion pounds(about 4.11 billion U.S. dollars) in May 2014, compared with 2.1 billion in April. Export totals rose but the rise in imports was higher.
Sterling at a six-year high against the dollar, of 1.71 dollars to the pound, plays a significant part in that and represents an unwelcome hurdle to exporters.
Businesses are not keen for an early rate rise, as they believe the recovery is vulnerable.
David Kern, chief economist with the business representative group British Chambers of Commerce (BCC) said, "Given the high level of underemployment that exists there is still spare capacity in the economy. Together with inflation below target and wages rising by less than 1 percent per year, there is no immediate need to increase interest rates."
Kern said that to sustain business confidence, the MPC "must strive to deliver a more clear and consistent message on the future path of interest rates. The risks from raising rates prematurely are much greater than the risks of waiting a little longer."
Many in business will agree with him, particularly in the SME sector, which finds lines of credit tough to arrange.
Focus from the markets will now be on the minutes of this month's MPC meeting, which will be released on July 23 and on the Quarterly Inflation Report in August for a more detailed explanation of the BOE's thoughts on the future path of the Bank Rate and also what it intends to do with proceeds of maturing gilts purchased under quantitative easing. (1 pound = 1.71 U.S. dollars)

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