The Bank of England's monetary policy committee will nearly certainly announce no change in United Kingdom interest rates and no change in its asset-purchase program today but traders in GBP will need to listen carefully when Bank Governor Mark Carney explains the decision and take a close look at the Bank's quarterly Inflation Report.
Growth of 1.4 pct this year will put Britain at, or very near, the bottom of the developed world league. "Do you act now or do you wait to see evidence that that momentum is reasserting (itself)", Carney told reporters when asked about signals from the BoE earlier this year that a rate hike was approaching.
Further, inflation is projected to fall back slightly more quickly than in February, reaching the 2% target in two years.
He said Thursday that rates would rise, albeit modestly, if the economy evolves in line with the bank's new projections.
Although rates remain at a very affordable level, even a slight increase could have further dampened the hunger of United Kingdom home buyers, and in a misfiring market that is already struggling to whet their appetite, this may have further stunted price growth.
However, if the bank chooses to unanimously keep interest rates on hold, there's the possibility that Sterling could endure a slump even lower.
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The two rate-setters who opted for an immediate quarter-point increase noted that unemployment is at its lowest level since 1975 and wages are growing, which could push up inflation.
BoE Governor Mark Carney told the BBC later on Thursday that he expected rates to rise this year, unless growth disappointed again. House prices are falling, most notably in London, retail sales are soft because the consumer is so stretched, and the services sector is "on pause" because of Brexit, according to Mizuho's Peter Chatwell.
How the Bank sees economic growth developing until the first quarter of 2021.
"Unless the economic news worsens significantly or the Brexit negotiations collapse, we are still set for rises over the coming year", Urwin said.
Chris Williamson, chief business economist at IHS Markit, said the fact that the Bank kept its medium-term outlook unchanged 'leaves expectations alive for rates to rise later in the year'. The recent weakness in data for the first quarter had been consistent with a temporary soft patch, with few implications for the current degree of slack or for the outlook for the United Kingdom economy, the minutes showed.
CPI inflation also fell to 2.5% in March, lower than expected at the time of the February Report. "With rates still rooted at emergency levels, this is one of the challenges faced by the Bank and how it chooses to deal with this will be key to the success of the United Kingdom economy in coming years".
The Royal Institution for Chartered Surveyors said that April saw a slight decline in average prices across the United Kingdom, but but quite big falls in values in London - particularly among homes in the £500k to £1million bracket. But these expectations can change rapidly - less than a month ago, the probability of a hike today was as high as 90 pct.
In another sign of slow growth in 2018, the British Retail Consortium said on Wednesday that overall retail spending contracted by 3.1% year-on-year in April.