Following poor growth figures for the first quarter which seemingly took the Bank of England by surprise, Governor Mark Carney continued to suggest that rate hikes were forthcoming but called for caution ahead of the U.K.'s exit from the European Union.
The Bank's monetary policy committee voted 7-2 to keep its key rate unchanged at 0.5% after its meeting ended May 9. While they were broadly of the opinion that the 0.1% GDP growth registered in the first quarter was a blip, they prefer to wait for additional data before tightening monetary policy again, Carney told a press conference May 10. He linked any rate rises to robust economic growth.
"While the storms of February and March have given way to sunnier skies, the economic outlook for the U.K. remains clouded by Brexit uncertainties," Carney said, appearing to tweak his language from the hawkish stance taken at the beginning of 2018.
"If the economy evolves in line with the main inflation and core projections the MPC judges that an ongoing modest tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its targets."
But he added: "Let's see evidence before moving."
He pointed to the possibility of two rate rises over a period as long as a year and a half, contingent on GDP numbers tracking forecasts. In February he had suggested that the Bank was considering three hikes in three years, and warned markets that rates may need to be hiked quicker than expected.
Foreign exchange traders took a dovish view of the MPC's meeting, with the pound falling 0.44% to $1.3488 by 11:54 a.m. ET, continuing a three-week slide from levels above $1.40 on softening economic data.
Reactions from monetary policy observers were mixed, with some detecting an indication that rate rises would be further delayed, and others holding to expectations of a hike in August.
"With robust nominal wage growth and real wages finally picking up, we expect rates to be maintained in the near term," said Markus Kuger, senior economist at Dun & Bradstreet, a financial research firm.
But Norris Koppel, CEO and founder of mobile phone bank Monese, said that "by delaying the hike this time around we could be in store of a sharper increase further down the line to compensate."
"I’d be surprised if we don’t see an increase in rates in August once the slow start has passed," he added.
Carney said the Bank will take the earliest opportunity to increase rates: "The core message is there needs to be an ongoing withdrawal of stimulus."
The Bank will also closely follow the U.S. Federal Reserve's progress in unwinding its huge government bond portfolio before making a move on its own holdings, reaching £435 billion, he said.