As The Bank of England Governor Mark Carney explained during the press conference, that the United Kingdom households and business all expect the Bank rate to rise slightly in three-year time, but they all are more anxious about the actual outcome of the Brexit negotiations as the future path for the policy rate will be up, with move only gradual and limited.
Despite the modest and likely short lived nature of the slowdown, there are some signs that a rate hike might not come even at the next MPC meeting in June.
Kevin Doran, chief investment officer at AJ Bell, said: "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". Sterling fell to a day´s low of $1.352, reversing earlier gains, and the yield on two-year British government bonds, which are sensitive to monetary policy expectations, fell modestly.
The Bank has described recent disappointing economic data as a "temporary soft patch", implying rates will rise in the fullness of time (with interest rates near an all time low, this is one of the safest of bets and only a question of timing).
Since he joined the BoE in 2013, Carney has signaled several times that the time was nearing for rates to rise from the historic low of 0.5 percent they reached during the 2008-09 financial crisis, only for economic data to go the wrong way. Britain´s economy grew more slowly than most of its peers a year ago after a Brexit-driven jump in inflation hit consumer spending power and some businesses delayed long-term investment. Surveys have suggested little rebound last month.
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The Bank of England (BoE) today chose to keep interest rates at 0.5% in measured response to relatively weak economic data for 1Q2018.
"There was value in seeing how the data unfolded over the coming months, to discern whether the softness in Q1 might persist", they said.
The BoE said weaker inflation was due to a faster fading of the impact of sterling's plunge on import prices, and that domestic inflation pressures continued to rise. Inflation has been falling a little faster than the Bank expected it to, and it is now expected to drop down to the target 2% within the next couple of years, regardless of any change in interest rates.
The BoE has already revised down its forecasts for 2018, said it expected economic growth would increase over the course of the year. While the subdued first quarter outturn signified that the full-year growth estimates was lowered, unchanged forecasts for 2019 and 2010 meant that the central bank's broader views on the economy were left intact, stated Lloyds Bank.