Bank of England raises UK interest rates
Channel: WORLD WIDE NEWS
Date: 2018-08-02

The Bank's Monetary Policy Committee had been expected to raise interest rates in May, but held fire because the economy went through a weak patch at the start of the year - partly because of the harsh weather conditions, dubbed the Beast from the East.

Led by governor Mark Carney, the Bank is now confident that the dip was temporary and that economic growth will recover from the 0.2% rate seen in the first quarter, to 0.4% in the second quarter and maintain that pace later in the year
The Bank is sticking to previous guidance that there will be further interest rate rises, but Mr Carney said these will be "limited and gradual".

"Rates can be expected to rise gradually. Policy needs to walk, not run, to stand still," he said.

However, the Institute of Directors said the Bank had "jumped the gun" by raising the rate now.

It said: "The rise threatens to dampen consumer and business confidence at an already fragile time.

"Growth has remained subdued, and the recent partial rebound is the least that could be expected after the lack of progress in the year's first quarter."
The Bank said a pick-up in the economy is being supported by household spending, which the Bank said had been "erratic" earlier in the year.

It is also believes the recent series of store closures on the High Street does not reflect a lack of appetite for shopping.

In its Quarterly Inflation Report, the Bank said: "Although in the past year the number of retail closures have increased and retail footfall has fallen, contacts of the Bank's agents suggest that mainly reflects shifts in consumer demand to online stores and from goods to services."

But Suren Thiru, head of economics at the British Chambers of Commerce, said: "The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy.

"While a quarter-point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence at a time of significant political and economic uncertainty."
Commenting on Brexit, Mr Carney said the Monetary Policy Committee "recognises that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal".

He said: "Negotiations are now entering a critical period, with the UK and EU both seeking an agreement by the end of the year.

"Although the range of potential outcomes is wide, what matters for monetary policy is how people react to developments."

He said British households so far have been "resilient - but not indifferent - to Brexit news".
It said the outlook for the global economy was a bit gloomier, partly owing to the trade war between the US and China which has seen tariffs imposed on a range of goods.

It also highlighted a slowdown in the UK housing market this year, which has been "concentrated in London", where mortgage completions are down 12% on 2016.

But the Bank thinks that weakness might just be specific to the capital and may not say much about the prospects for the UK housing market as a whole.