What’s Going On Here?

• The Bank of England (BoE) followed its US counterpart in keeping the UK’s interest rates unchanged.
• But despite lowering its economic growth forecast, it may still increase rates later this year.

What Does This Mean?

• The UK’s central bank now think the country’s economy won’t grow at all this quarter (compared with its 0.2% growth prediction in March). A still-uncertain Brexit path is partly to blame: British businesses stockpiling products ahead of a now-delayed Brexit has led to a lack of new orders for manufacturers as companies chow through their existing stashes.
• But workers’ wages are rising faster than the central bank’s target – although inflation has now cooled down and is expected to stay chilled. That may have persuaded the BoE to hold off rate increases for now – but in the event of a smooth Brexit, gradual rate hikes remain on the cards.

Why Should I Care?

For markets: Higher-minded.

• In remaining open to higher interest rates, the UK’s going around the battle brewing between the US, China, and the eurozone – each of which is looking to lower their rates (→ cheaper currency → attractive to foreign buyers).
• The pound’s value fluctuated as investors weighed potential higher rates to come against a lower economic growth forecast. But investors gobbled up Norwegian kroner after the country’s central bank announced its third rate hike in a year.

The bigger picture: From macro to micro.

• Recent European retail sales weakness appeared in the UK in May – supporting the BoE’s lowered growth forecast. One victim is electronics retailer Dixons Carphone, which warned that less frequent consumer smartphone upgrades would affect to its annual earnings – leading investors to dial its shares down 5%.

Content source: Finimize. (2019) Take It To The Bank. Available from: https://www.finimize.com/wp/news/take-it-to-the-bank/ [Accessed 22 June 2019]