London close: Pound's fall after Bank stands pat boosts FTSE

04 August, 2017, 00:29 | Author: Celia Hoffman
  • GETTYGBP  EUR has also been supported higher after Eurozone data today has taken the edge off the euro

More specifically, the BoE's Monetary Policy Committee (MPC) voted by 6-2 to maintain its benchmark interest rate at the record low of 0.25%.

July private sector PMI figures this week have been mixed this week, with the manufacturing sector seeing a pickup in activity, whilst the pace of expansion in the construction sector slowed significantly, though this morning's sector PMI numbers will be of far greater influence, the United Kingdom services sector accounting for 80% of the United Kingdom economy.

One of those three members, Kirstin Forbes, left the committee between that vote and today, and her replacement voted to keep rates unchanged.

New economic forecasts released by the Bank at the same time cut the outlook for GDP growth this year and next and painted a weaker picture for earnings growth.

However, in the minutes on the policy meeting the Bank said some monetary tightening may be needed in the next three years if the economy improved as expected. Bank chief economist Andy Haldane surprised onlookers by voting to keep the current rate, despite speculation he may have been in favour of a rise.

"I think they are not going to vote for a rate hike at this time and probably not until at least November and maybe not even until 2018", he said.

The Bank also kept its asset purchase programmes unchanged and said a bank lending scheme would end as previously scheduled in February 2018.

It is now a year since the last cut in the Bank of England base rate, with many expecting a rise could be imminent.

This explains why the Bank cut its forecast for economic growth for this year and next.

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Inflation is expected to peak at around 3% in October, as the surge in import prices caused by the post-Brexit-referendum drop in the pound continues to feed through to shop prices.

Longworth, who resigned from the British Chamber of Commerce (BCC) to serve as Chairman of the Vote Leave Business Council before the Brexit vote, said that membership of the single market was stopping the UK Government from growing the economy.

The BOE has revised down its 2017 growth projections, to 1.7 percent from 1.9 percent in May, saying the United Kingdom economy will remain "sluggish".

The assumption of a smooth Brexit will be tested.

This £15bn increase was due to the fact that banks had lent out more cash in the past year than expected - and bank lending is now being supported by the Bank's Term Funding Scheme. On the other hand, they downgraded some of their forecasts, especially for wage growth in 2018.

"As a outcome, the household saving ratio fell from 3.3% to 1.7%, its lowest level since the series began in 1963".

Underlying the squeeze on households from inflation, real wages will fall by 0.5 per cent this year, according to BOE's new forecast.

The latest Inflation Report from the Bank of England made for some glum reading for sterling bulls, although the weakening in the pound helped to propel the FTSE 100 to its highest level since 26 July.

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