Will BoE Raise Rate Despite Weak Economic Data?
The Bank of England is widely expected to keep interest rate unchanged at 0.5%, after surprisingly weak data. The Bank is also awaited to downgrade its economic growth forecasts. In addition, cautious remarks from Governor Mark Carney dashed expectations of what until a few weeks ago looked a near-certain increase. The BoE raised rates for the first time in more than a decade in November last year, reversing an emergency cut made after June 2016’s Brexit vote. In February, Carney said rates might need to rise somewhat faster than markets had expected, given the country’s long-term productivity problems.
The latest UK economic data were disappointing. GDP increased by just 0.1% in the first three months of the year (the slowest pace in five years), down from a rate of 0.4% in Q4 2017, adding to the growing sense that the economy is struggling and pushing back expectations of a rate rise before the summer.
Also, today’s data showed that UK manufacturing production fell by 0.1% in March. The consensus expectation had been for a decline of 0.2%. On an annualized basis, manufacturing production increased by 2.9% in March (in line with forecasts). In February, manufacturing production grew by 2.5% from the year before.