Bank of England meeting
What effect does the BoE’s announcement have
on the UK economy, and what does it mean for
traders?
Confident forecasts of an interest rate increase at the Bank of England’s (BoE) May meeting have been dashed, after governor Mark Carney talked down the chances in a recent interview with the BBC. Coupled with that, recent UK data has turned sour, while the mood music emanating from the high street is dire, with multiple retailers issuing updates that point towards further tough times.
The BoE is acutely aware of the position of the UK consumer, beset by a wage squeeze that has only just ended and the possibility of higher repayments on their loans and mortgages as a result of the rise in interest rates. However, global growth is still broadly moving in the right direction, while UK wage growth is finally beginning to pick up.
The UK has recently gone through its weakest quarterly growth figure since 2012. While the hit had some temporary elements, including snow that wrought particular damage on the construction industry, the overall trend has not been great. Added to that, higher minimum wages, increased business rates and weaker demand have created a trifecta of concerns that should worry policymakers. A fall in consumer credit also sends a worrying signal, particularly since the exact reason for the slowdown has yet to become clear.
In sum, the bank may well not hike this time around. But it will probably signal that August is becoming a definite candidate for an increase. This sense of having to move soon will be heightened by the October European Union (EU) summit. Previous summits saw negotiations between the UK and EU become increasingly fractious, even if solutions were found in the end. Thus, Carney may feel that August is his last chance before Brexit takes centre stage once again.
