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Bank of England raises growth forecasts, but keeps rates on hold

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02/05/2019
The Bank of England has raised its forecasts for the UK economy this year, saying that an improving global economy should boost growth

The Bank is now forecasting growth of 1.5% this year, up from February’s forecast of 1.2%.

However, the Bank chose to keep interest rates on hold at 0.75%, given that considerable uncertainty remains over the Brexit situation.

Sophie Kilvert, private client manager at 7IM, said continued low rates should prompt those holding cash to rethink: “Today sees the Bank of England Monetary Policy Committee condemn interest rates to be locked at 0.75% for another month. With the Bank of England likely to keep a lid on interest rates for the foreseeable future due to the ‘fog’ of Brexit, it’s downright reckless to hold onto cash if you’re looking to generate any sort of real return in the current environment.

“Since the financial crisis and thanks largely to the actions of the MPC, returns on cash in the UK have been lower than inflation in every year since 2009. And while it’s always important to have some cash in reserve, holding too much of it for too long is an expensive luxury that few can afford.”

Ed Monk, associate director at Fidelity International said continued low rates were good news for households who can expect mortgage and other borrowing costs to remain low: “The worry is that, as the Bank outlines, the reason rates won’t rise sooner is that growth is expected to slow. This reflects global trends, but also the effect that Brexit is having, and the now established trend of lower business investment that has been created by the ongoing uncertainty about our relationship with the EU.

“Uncertainty has provided cover for Mark Carney to keep rates on hold and it’s an open question as to whether he will oversee another rise in rates before he departs the Bank next year. Whether we get a rise this year or not, let’s remember that rates would still be at historically low levels, with further rises likely to be very gradual. This environment is likely to support risk assets over cash, particularly if inflation returns more strongly.”

 

 

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