The Bank of England has voted not to raise interest rates following their latest review meeting. The decision was announced at 12 noon today, with the Monetary Policy Committee (MPC) voting 7-2 against a rise at present.
In response to the decision the value of the Pound Sterling rose to €1.15 and a one-month high of $1.42, with some investors reassured by the votes in favour of a rise from Ian McCafferty and Michael Saunders, while the FTSE 100 continued its fall below 7000 points suggesting that not everybody was convinced of the strengths of Sterling in the face of global trade tariff wars.
A UK interest rate rise had been widely expected amid continued global economic growth and inflation concerns, but members – including BoE governor Mark Carney – voted against raising interest rates at present, instead choosing to let the UK economy play out for a few more months, suggesting that recent fiscal data had been unpredictable.
Experts had already predicted any rate rise to be scheduled for May, so the decision not to raise interest rates today doesn’t alter that expectation. The Reuters news agency reported polling results from economists, stating they didn’t expect a rate rise at this latest meeting but did expect an increase to borrowing costs to come in May, above the current levels of 0.5%.
A statement from the Bank of England said: “The May forecast round would enable the Committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures.”
Across the Atlantic, the US Federal Reserve voted unanimously (8-0) to increase interest rates by 0.25% to 1.75% yesterday evening, in a bid to counter the country’s rising inflation caused by tax cuts and increased federal spending. The decision brings US interest rates to their highest levels since 2008 and the global recession.
The decision was the first major move by Jerome Powell, the new chairman of the Fed, who said in a public statement: “Fiscal policy has become more stimulative. Ongoing job gains are boosting incomes and confidence”. In response there was a brief rise in the S&P 500 and the Dow Jones, before the markets flattened at the day’s close.
The increase in interest rates comes at a fairly safe time for the US, with unemployment down at 4.1% at present and expected to decrease further through 2018 and into 2019. Wage growth is slow but steady at 1%, and the Federal Reserve is forecasting growth of 2.7% for this year and 2.4% for next.
It is expected that the Fed will raise interest rate two or three more times in 2018, but with the looming trade war and threats between the US and China over tariffs, the Fed Reserve could be forced to sit idly while international politics play out – a delay that risks letting inflation pull away on the American economy.
