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UK interest rates on hold at 0.25% as economy slows

By Holly Williams

The Bank of England has warned the squeeze from Brexit-fuelled inflation on household income has started and said growth would remain "moderate" after faltering at the beginning of the year.

Policymakers on the Monetary Policy Committee (MPC) kept interest rates on hold at 0.25% as they nudged down the growth forecast to 1.9% for 2017 from 2% in February after a sharp slowdown in the first three months of the year.

Bank of England governor Mark Carney said the forecasts were based in part on "the adjustment to the UK's relationship with the EU being smooth", with expectations that the Government will introduce a transition period to avoid a cliff-edge departure from the single market.

Mr Carney said a whole different forecast would have to be produced to estimate the impact of a rocky or disorderly Brexit.

The Bank of England said that consumers were beginning to feel the pinch from surging inflation as the pound's plunge since the Brexit vote has pushed up prices.

It said inflation would hit just under 3% in the fourth quarter, far outstripping wage rises, which will see households rein in spending.

Economic growth pulled back sharply to 0.3% in the first three months of the year, from 0.7% in the previous three months after a sharper-than-expected fall in consumer spending.

The Bank said, while it expects first quarter expansion to be revised higher to 0.4%, the economy would likely continue at a "similarly moderate pace of growth in the second quarter and beyond".

Minutes showed seven MPC members voted to keep rates unchanged, while outgoing policymaker Kristin Forbes remained the sole dissenter repeating her call for a rise to 0.5%.

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