London (AFP) – The Bank of England on Thursday left its key interest rate at 0.50 percent as it slashed the growth forecast for the British economy less than one year before Brexit.
The decision met expectations following a raft of gloomy economic data pointing to slowing growth and weaker inflation as Britain readies for its exit from the European Union in March 2019.
“For the majority of (BoE) members, an increase in bank rate was not required at this meeting,” read minutes from the meeting of the bank’s nine-strong monetary policy committee (MPC).
“All members agree that any future increases in bank rate are likely to be at a gradual pace and to a limited extent.”
The bank cut its 2018 gross domestic product (GDP) growth forecast to 1.4 percent from 1.8 percent, following a weather-related hit at the start of the year that impacted many sectors.
Only a few weeks ago, economists were predicting a hike in borrowing costs to 0.75 percent this month but recent gloomy data changed the outlook.
Official figures have shown that the economy grew at its slowest pace in more than five years in the first quarter of 2018.
“Weaker than expected GDP for the first quarter and falling inflation made it impossible for the MPC to justify a hike in interest rates,” said analyst Jacob Deppe at trading platform Infinox.
“To have hiked bank rate would have contradicted all economic logic.”
Gross domestic product expanded by just 0.1 percent in the three months to the end of March, recent data showed.
That was the weakest growth rate since 2012 and dashed market expectations for growth of 0.3 percent.
The bank on Thursday added that policymakers still believed that a rate increase would be “appropriate” at some point to bring inflation under control.
Recent data also showed UK inflation unexpectedly slowed in March to 2.5 percent — the lowest level in a year.
However, it remains stubbornly above the BoE’s government-set target level of 2.0 percent.
“An ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon,” the minutes added.
The bank said news of sluggish economic activity was enough to convince the majority of MPC members to maintain the status quo.
The BoE also refrained Thursday from altering its quantitative easing stimulus policy, under which it has pumping £445 billion ($603 billion, 508 billion euros) around the economy.