MPC votes 7-2 to hold Bank Rate at 0.5%

The Prime Minister Delivers Speech On Britain's Economic Future With The EU

Despite this downgrade of rate expectations, the bank suggested that Q1 GDP was likely to be upgraded to 0.3% while also saying that it expected inflation to reach its 2% goal much faster than it thought it would three months ago.

However, if the bank chooses to unanimously keep interest rates on hold, there's the possibility that Sterling could endure a slump even lower.

Investors were disappointed that the BoE had stepped back from tightening monetary policy once again, although the recent weaker-than-expected first quarter United Kingdom data encouraged this lack of action.

In the weeks leading up to the actual decision, there had been some speculation that the Bank would act to tighten monetary policy on the back of Governor Mark Carney's comments, but it has been odds on for some time that the MPC would delay a rise until (probably) August. "However what it will depend on is the degree to which the economy recovers from the Q1 dip and how it compares to the Bank of England's forecasts over the rest of the year".

Meanwhile, the US Consumer Price Index (CPI) will be out in today's session which could create some GBP/USD exchange rate movement. "As Brexit looms on the horizon the United Kingdom economy is growing slower than global peers, with no acceleration in sight".

In its May Inflation Report, the BoE revised its projected GDP growth expectations for the second quarter of 2018 down from the February estimate of 1.8% to 1.4%, while predicting inflation will fall to 2.4%, rather than 2.7% as previously forecast.

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But markets appeared to be in an unforgiving mood, given what many observers understood had been an abrupt (and very recent) "about face" in the Bank's "forward guidance".

Tom Stevenson, investment director for personal investing at Fidelity International, explains: "Until a few weeks ago, a further quarter point rate hike to 0.75% looked nearly guaranteed".

The bank expects inflation to ease back to 2.1 percent by this time next year and get to target in two years, provided the main interest rate rises to 1.1 percent in two years and to 1.2 percent in three years. "For borrowers approaching the end of their fixed terms and on tracker rates, the next few weeks could be crucial for looking at remortgage deals that could offer the security of a longer-term fixed option before the expected rate rises hit". This may be prudent but it risks the Bank being short of firepower come the next downturn.

An agreed transition period that lasts until December 2020 could provide more time for the United Kingdom to redefine its trading relationship with the European Union, potentially smoothing economic shocks and buying time for policy makers to raise rates.

But while savers will be disappointed, it's pretty good news for investors.

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