Frozen Too

Mark Carney's meeting kept rates the same

Image source: Twocoms, Sarunyu L - Shutterstock

What's going on?

Following fevered speculation about which way outgoing Bank of England chief Mark Carney’s final interest rate committee would swing, he ended up just letting it go on Thursday. The Bank followed its US contemporary’s Wednesday decision by keeping interest rates on ice – for now.

What does this mean?

The Bank of England regularly revisits whether to raise, lower, or maintain target interest rates. Its job is to keep the UK economy growing and annual inflation – the rise in the prices of goods and services – at around 2%.

The Bank was in a tricky spot this time round. UK economic growth slowed last year – strengthening the case for a rate cut, which would make borrowing cheaper and could stimulate growth. But there are also fears that prices may start rising too fast, which lower rates (and correspondingly higher spending) could exacerbate. With signs of green shoots growing through the snow, Carney’s cronies instead opted to simply kick the can.

Why should I care?

For markets: Love is an open door.

Thursday’s decision has shifted responsibility to incoming Bank governor Andrew Bailey. He’ll be hoping the economy keeps growing and inflation rises steadily: forecasts indicate it’ll hit the 2% target at the end of next year, up from a tepid 1.3% last month. But the Bank has also cut its expectations for future growth, and it’s keeping a weather eye on Brexit. If growth slows further, interest rates may well be for the chop later this year. Investors certainly seem to think so…

Zooming out: Do you wanna build a trade deal?

The Bank of England’s decision mirrored that of the US Federal Reserve on Wednesday – though with new data on Thursday showing slowing US economic growth, it might reconsider that next time. America’s encouraging Britain to rethink things, too. This week the UK announced Chinese telecoms firm Huawei would be involved in building 5G networks there, despite US security concerns. That may not help Brexit Britain’s hoped-for transatlantic trade deal.

Originally posted as part of the Finimize daily email.

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