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Bank unlikely to raise interest rates in May after latest economic data

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Written by: Lana Clements
03/05/2018
The Bank of England is unlikely to raise interest rates when the Monetary Policy Committee (MPC) meets next week, after the latest data further pointed to a lacklustre economy, experts said.

Output in Britain’s crucial services sector lifted only slightly in April, following a plunge in March, PMI data from Markit/CIPS Service showed today.

It is the latest in a string of disappointing data on the UK economy, which has prompted market expectations of a May interest rate rise to fall from 90% to around 10% in a matter of weeks.

Earlier this week, data from the same provider showed manufacturing output in April fell further than expected.

It comes after UK economic growth for the first quarter came in below expectations at just 0.1%.

At the start of the year, Bank of England monetary policymakers had warned interest rates were likely to rise sooner and faster than had been expected.

But last month governor Mark Carney acknowledged that economic performance data had become “softer”.

Interest rate rise not likely before August

Most economists now believe a rate hike is unlikely in May but predict a rise could still be on the cards in 2018.

The Monetary Policy Committee (MPC) is considered most likely to increase interest rates to coincide with the release of its quarterly inflation report, making August the next opportunity after May.

Paul Hollingsworth, senior UK economist at Capital Economics, said: “The slight pick-up in the services PMI in April will do little to assuage fears that the economy has suffered a loss of underlying momentum and makes the chance of a rate hike next week extremely slim.

“Taken together with the construction and manufacturing surveys released earlier this week, the all-sector PMI points to GDP growth of about 0.3%, suggesting that the economy is struggling to re-gain momentum.”

However, he added: “With the survey noting that wage cost pressures in the services sector are building, the committee is unlikely to want to wait too long before raising interest rates again.”

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