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Beast blamed for slowdown

Bank holds interest rates and cuts growth forecast

Bank concerned by slow growth (photo by Terry Murden)


Bank of England rate-setters held interest rates at 0.5% and lowered expectations for UK growth.

The Monetary Policy Committee voted 7-2 for no change in interest rates, attributing its decision in part to the disruption to the economy caused by the ‘Beast from the East’ snowstorm in early March which brought some business activity to a halt.

The bank now expects growth of 1.4% in 2018, against its previous forecast of 1.8% in February.

There had been wide expectations as recently as February of a rate rise to 0.75%, but that view changed after figures released last month showed the economy growing by just 0.1% in the first three months of the year.

New figures today from the ONS show that construction output continued its recent decline, falling laster quarter by 2.7% in March, the biggest fall since August 2012.

The pound slipped on today’s announcement, falling 0.2% against the dollar to $1.3524.

Tom Stevenson, investment director for Personal Investing at Fidelity International said: “Mark Carney really is the ‘unreliable boyfriend’. Leaving the base rate at 0.5% – what was once thought of as an emergency rate  – is another big U-turn for the Bank of England governor. 

“Until a few weeks ago, a further quarter point rate hike to 0.75% looked almost guaranteed. But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady’s increasingly unhelpful forward guidance. The Bank of England has marched investors up to the top of the hill only to march them back down again.”

Nick Dixon, Investment Director at Aegon, said: “The reasons for caution shown today by the Bank of England are clear. The pound appears to have stabilised reducing future inflation risk, UK growth expectations are lower, and the global picture is less certain. 

“We see these forces, reinforced by Brexit uncertainty, persisting into the second half of 2018 and reducing the likely pace of future rate increases.”

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: “Few would have predicted today’s decision to hold interest rates if they’d been asked just a couple of weeks ago.”

She said there was wider concern around the UK economy. 

“While labour market tightness should be supportive for wage growth and inflation, Mark Carney is right to exercise caution in the face of such weak data.”

Professor Peter Urwin, director of the Centre for Employment Research and Professor of Applied Economics at Westminster Business School, believes that Brexit negotiations will lead to rate rises over the coming year: 

“Today’s decision was not a foregone conclusion. The manufacturing sector is still growing, and interest rate rises are needed to get back to normal monetary conditions – inflation of 2.5% does not change this.

“In addition ‘The Beast from the East’ can be blamed for softer growth figures, and the Brexit rollercoaster is at least moving forward, so we should feel some benefit from continued growth in the global economy.”

Kevin Doran, chief investment officer at AJ Bell, comments: “It seems that the recent soft spot in UK data was enough for Carney & Co to revert back to unreliable boyfriend mode once again. 

“Today’s announcement heaps more pain on savers who have already lost a third of their purchasing power over the past 10 years as inflation has comfortably outstripped the meagre interest earned on their cash. 

“The prospect of a tight labour market, a bubbling crude and weaker sterling seems set to only stoke inflation higher in coming months, with little solace on offer from the Bank. 

“In a world where other central banks are seeking to normalise their rates, the combination of slow growth and Brexit uncertainty must surely be raising some concerns about the size of the current account deficit.”

Stuart LunnStuart Lunn, (right), CEO of peer-to-peer lender LendingCrowd, said the decision will “maintain the strain felt by hard-pressed savers.”

He added: “The rate of consumer prices inflation may have slowed to 2.5% in March, but it remains higher than the Bank of England’s 2% target and well above the average interest rate offered by easy-access cash accounts.

“As a result, many people will continue to see the value of their savings eroded by the rising cost of living.”



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