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Interest rates set to stay on hold after disappointing economic data

Published 09/09/2015

The Bank of England is set to keep interest rates on hold
The Bank of England is set to keep interest rates on hold

Interest rates are expected to remain on hold tomorrow when the Bank of England delivers its latest policy decision amid mounting concern that the economy is slowing down.

Rates have remained unchanged at 0.5% for more than six years and are not expected to rise until next year.

The Bank's Monetary Policy Committee (MPC) is likely to weigh up developments such as accelerating wage growth and upward revisions to the UK's economic performance, against recent data that points to the powerhouse services sector slowing and exports falling to their lowest level in four years.

Economists at Capital Economics forecast the MPC will vote eight to one in favour of keeping rates unchanged, which will mirror last month's vote.

Observers say two sets of poor economic data released on Wednesday will ease the pressure on MPC members to lift interest rates.

A strong pound and weak overseas demand saw Britain's manufacturing sector suffer its largest monthly fall in activity for more than a year, official figures showed.

Most economists had expected the manufacturing sector to grow by 0.2% month-on-month in July, but the latest figures from the Office for National Statistics (ONS) revealed a 0.8% slump - the biggest fall since May 2014.

Also, on Wednesday the ONS said Britain's trade deficit ballooned in July after the country's exports fell to their lowest level in four years as firms were hit by robust sterling levels.

The ONS said the export of goods fell by £2.3 billion to £22.8 billion in July, the lowest export figure since September 2010, led by a drop in exports of chemicals and manufactured goods.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "A double whammy of bad news for the UK economy that does not bode at all well for gross domestic product growth in the third quarter."

Mr Archer added he had expected gross domestic product growth to moderate from 0.7% in the second quarter to 0.6% in the third quarter, "but there is now a serious risk that growth could dip to 0.5% quarter-on-quarter or even lower".

Economists at Investec added that the MPC vote and the subsequent minutes of the meeting "should offer a steer on how recent global events might affect the policy stance of the MPC as a whole".

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