The Bank of England's Monetary Policy Committee (MPC) has voted by seven to one to maintain the bank rate at 0.25%, keep the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion and maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.
Tom Stevenson, investment director for Personal Investing at Fidelity International, comments:
"No big surprises at today's Super Thursday announcement, where the Bank of England revealed its hand on interest rates, released the latest MPC meeting minutes and crucially, presented its quarterly inflation report.
"Seven out of the eight members of the MPC voted to leave rates unchanged at 0.25%.
"However, the Bank indicated that if the economy continues to recover as it expects then interest rates may need to rise more quickly than the market currently expects.
"All eyes were on the latest inflation report today, widely viewed as the quarterly health check on the state of the economy. As expected the Bank cut its growth forecast in the short term but slightly raised it in the medium term. It also raised inflation guidance and the Bank of England said it expected inflation to hit 2.7% by June 2017 , considerably overshooting the Bank's 2% target.
"The weak pound since Britain's vote to leave the EU has seen inflation surge in recent months with a weaker sterling pushing up the price of imported goods. For now, it seems the Bank of England will be sitting tight on a rate rise given the headwinds the UK economy faces and the strengthening of the pound. Mr Carney remains of the view that the Brexit negotiating period will be extremely challenging for the UK economy. But today's announcement introduces a more hawkish tone than we have seen previously.
"With the BoE likely to keep interest rates parked at historic lows for the foreseeable future and with inflation on the rise, anyone with savings still sitting in cash will struggle to generate a real return. If anyone is still unsure about the benefits of investing in stocks and shares over saving in cash then our calculations show that if you had invested £15,000 into the FTSE All Share index over the past ten years you would now be left with £25,332. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £15,740*. That's a difference of £9,592 – too big for any sensible saver to ignore."
Rain Newton-Smith, CBI Chief Economist, said:
"The Monetary Policy Committee remained in wait-and-see mode this month, following slower growth in the first quarter, tepid wage growth and signs that household spending is coming under pressure.
"There are mixed messages on economic momentum, with survey indicators pointing to stronger growth than official data. Any changes to monetary policy are unlikely in the near future, particularly amid ongoing uncertainty over the impact and outcomes of EU negotiations.
"The business community wants to see how each political party plans to best support stability and offer a long-term vision for the UK economy – making it the most inclusive, innovative and open in the world.
"That means the next Government must truly get behind a new Industrial Strategy to drive growth and job creation across the UK and also deliver a new migration system that ensures firms have access to the skills and labour they need post-Brexit."
Martin Beck, senior economic advisor to the EY ITEM Club, comments:
"Those hoping that today's 'Super Thursday' would deliver some monetary policy excitement will have been disappointed. Given signs of a slowdown in the economy and Brexit related uncertainty, a steady-as-she-goes approach is hard to criticise. Overall, the Bank's report offers no reason to think that interest rates will move from their current rock-bottom levels for the foreseeable future. We anticipate no rise in Bank Rate until late-2018.
"The Committee attempted to push back at the current bearishness of the markets, which do not appear to expect any rate hike until the turn of the decade. In terms of the forecast, a rise in projected inflation this year compared to May's forecast, along with a cut to anticipated pay growth, means that the Bank now expects a bigger squeeze on households' spending power than it previously anticipated. This contributed to a small cut to forecast GDP growth in 2017. But this is offset further out, as recent spurs to inflation from the weak pound and rising commodity prices wash out of the numbers more quickly.
"With little change expected in growth or inflation over the Bank's forecast period as a whole, it was unsurprising that the language of the minutes and the Inflation Report around future policy largely replicated what we have seen in recent months."
Ishaan Malhi, CEO and founder of online mortgage broker Trussle, said:
"The Bank of England's continued reluctance to raise rates certainly won't be pleasing savers, but anyone looking to buy their first home or switch mortgage can breathe a sigh of relief. Locking in a low fixed rate mortgage now can save you an absolute fortune in the long run, especially if you're one of the three million UK homeowners currently paying over the odds on a lender's Standard Variable Rate.
"With inflation still climbing, the signs suggests that the first interest rate rise in a decade may come soon. Any homeowners thinking about remortgaging, or hopeful first-time buyers holding back until the result of the General Election is known, should act soon to avoid missing out on historically low mortgage rates."
Dominic Baliszewski, Director of Consumer Strategy for Momentum UK says:
"The Bank of England's continued 'wait and see' approach is piling more pressure on savers. People haven't been able to make any real return on their savings for a long time, and they are now facing shrinking disposable incomes, thanks to rising inflation and stagnant wage growth. What's worse, the combination of low savings interest rates and growing inflation, in effect, means that people savings are losing value.
"With the economy growing faster than previously expected and employment on the rise, there are signs that we may see a rate rise sooner than expected. Until it happens though, savers need to be savvier than ever. Anyone looking for a meaningful return might want to look at low risk investing options – whilst there is an element of risk compared to savings, for some it may be preferable to the certainty of losing money in the long term in a low interest saving account."
Liz Rees, Head of Research at Willis Owen, comments:
"The top fund picks for the first month of the new tax year reveal that customers are still seeking income, whether it be in the UK, in Global Equities or from Bonds. This reflects the fact that many cash ISAs will now be generating negative real returns with rates stuck at around 1% and inflation at 2.3%. Investors seeking growth funds also seem prepared to look beyond home shores with two funds covering Asian countries proving popular.
"It is interesting that investors are dipping a toe into Europe again. Possibly encouraged by the anticipated outcome of the French election, Macron's victory, we saw the addition of a European fund to our best sellers this month. Confidence that the future of the European Union looks more secure and a better than expected corporate results season may have led to some investors demonstrating faith in the outlook for Europe.
"The absence of any US funds could be a result of investors switching to markets with less demanding valuations. Investors often invest in the early stages of a region's recovery but will then take profits further down the line as the cycle matures. Japan is also notably absent once again from our list as customers appear to be put off by the high volatility present in this market."
TUC General Secretary Frances O'Grady said:
"British workers have already suffered the longest pay squeeze since Victorian times. It will worry them that the Bank of England says there is more pain to come this year.
"All the political parties must explain in their manifestos how they will give Britain a pay rise. They should start with scrapping the unfair pay restrictions on public servants, which will leave midwives over £3,000 a year worse off in real terms by 2020. And they must commit to boosting the National Minimum Wage to £10 as soon as possible."
Commenting on the inflation report, John McDonnell, Labour's Shadow Chancellor, said:
"Today's downgraded growth, earnings and productivity forecasts and upgraded inflations forecasts, signal bad news for living standards under the Tories.
"These forecasts from the Bank of England come on the back of disappointing growth for the first three months of the year and downgraded forecasts from leading independent forecasters for the UK economy.
"There is no hiding from the truth. The Tories' failed economic plan is holding Britain back, and is undermining our economy and threatening working people's living standards.
"This General Election is a choice between a Labour Party who will stand up for the many and a Tory Party which only looks after the privileged few."
Michael Metcalfe, global head of macro strategy at State Street Global Markets commented:
"Like the Federal Reserve (Fed), the BoE has chosen to put little weight on the weakness of Q1 GDP data. However, the hawkish tone suggests they are less willing to ignore recent inflation trends and that the committee now has a clear tightening bias."
"Taking its lead from the much higher inflation observed by State Street PriceStats* – a daily measure of inflation derived from prices posted to public websites by hundreds of online retailers – the trend in official inflation data this year has been stronger than the BoE had originally projected. The BoE's inflation projections have now been adjusted upward in response. However, unless this stronger inflation trend is compensated by a much weaker growth profile, effectively a repeat of Q1 GDP data this quarter, interest rate markets will need to better price the possibility of an interest rate hike later in the year. This has the potential to provide a considerable boost to sterling."
Alan Wilson, senior investment manager of active fixed income at State Street Global Advisors commented:
"In line with market expectations, the BoE left interest rates and its asset purchase programme unchanged. Despite growing market speculation that Michael Saunders could have been the second committee member to vote for a rate hike, Kristin Forbes remained the sole dissenter. While Forbes' influence can be somewhat discounted given her imminent departure, inflation concerns do seem to be rising within the MPC given the hawkish signalling within the meeting minutes and the upward revisions to the near term inflation forecasts within the Quarterly Inflation Report. Since the UK referendum last year, the BoE has been contending with the conflicting forces of a strong domestic economy, inflationary pressures and its projection a Brexit related slowdown may be coming."
"Given this outlook, the MPC has remained in a neutral position, shifting between dovish and hawkish signalling as it awaits tangible signs the economy is slowing. Recently, MPC signalling has been of a hawkish nature to encourage the market to dampen inflation pressures on its behalf. Nonetheless, this signalling has been completely ignored by the market, with next to no rate hikes priced over the next year. As such, the committee has been forced into action today; given the precarious outlook for the domestic economy, they cannot allow inflation to become entrenched."
Schroders' Fixed Income Fund Manager, Alix Stewart, commented:
"The Bank of England has made some fairly optimistic assumptions regarding UK growth and the return of wage inflation. As the Bank recognises, however, these are based on the UK's exit from the European Union being smooth. Given recent political headlines this is certainly not a given.
"It's also worth noting that the UK's economy has been supported since last June's referendum vote by the Bank's decision to cut interest rates and extend quantitative easing, as well as by the depreciation of the pound. With these factors in mind, it is hard to ascertain the underlying strength of the UK economy at this point. So we remain cautious on how rosy the picture looking ahead really is. For example, until businesses know what Brexit will look like they are likely to hold back on investment decisions.
"A conclusive election result next month may help in this regard but there remains more reasons to be cautious on the UK than optimistic at this point."
Adam Chester, Head of Economics at Lloyds Bank Commercial Banking says:
"On the face of it, today's Bank of England announcement was more hawkish than expected. One member of the committee, Kristin Forbes, again voted for an immediate quarter-point rise in Bank Rate , while some other members suggested it would not take much more positive news to prompt them to change their minds. Notably, however, it was the committee's reference to current market pricing that provided the strongest hint of its current policy thinking. The committee explicitly noted that, if the economy evolved as expected, interest rates would likely have to rise more sharply over the coming years than the markets were discounting.
"Despite this, initial reaction saw the pound spike lower. This seems odd, although market expectations had already corrected to some degree over the past week or so. The Bank's economic projections were put together when the market was expecting Bank Rate to remain unchanged until late 2019. Over the past week, market pricing for the first rise has been brought forward to late next year.
"So, overall, the message conveyed by today's minutes do not appear that different from where the market is currently trading. We await the Governor's comments for more detail on this."