Bank of England keeps rates at record low as economy slows

Bank of England Governor Mark Carney leaves after speaking at 2017 Institute of International Finance (IIF) policy summit in Washington, U.S., April 20, 2017. But for now, despite the slightly improved growth outlook beyond 2017, the Bank's inflation report dampened the immediate prospects for the British economy, heightening fears amongst traders of slower economic growth from softer consumer spending.

And then, along with other officials, he's had to refrain from public speaking - aside from policy-specific communications - since the middle of last month until after the snap United Kingdom election in June.

The central bank released its quarterly Inflation Report, with forecasts little changed from the previous report in February. Carney will be pressed on the timing of the bank's slow trek towards tightening at a news conference after the announcement.

There are plenty of reasons for the bank to stay on hold.

Weighing up how the eight policymakers at this week's meeting will vote, Victoria Clarke, an economist at Investec, noted that minutes from the March meeting in March showed worries about inflation went beyond Forbes. The minutes may also mention that that some members could consider a tightening of policy in the next months if positive data persists.

In the last comments before the pre-election purdah, Michael Saunders effectively outed himself as within that group, predicting a faster inflation pick-up this year and stronger growth. Carney still holds dear to the mantra that wage inflation will return with a vengeance.

"The weak pound since Britain's vote to leave the European Union has seen inflation surge in recent months with a weaker sterling pushing up the price of imported goods", said Tom Stevenson, investment director for personal investing at Fidelity International. In the prior month, manufacturing production had dropped by a revised 0.3%.

'Economists have increased forecasts for 2017 growth since February, raising their GDP predictions from 1.6 per cent to 1.7p per cent, while cutting their unemployment forecasts from 5.2 per cent to 5 per cent. As Carney himself said, "it's early days".

For this year there are some major negative trends.

'We expect consumer spending to remain weak throughout this year and next as rising inflation erodes the purchasing power of households'.

Investors see a less than 60% chance of any move by the BoE until at least the end of 2018. This, in turn, implies a rate hike somewhere along the line.

But he warned that if wage growth fails to rise, "there will be consequences".

Long-term inflation expectations are declining, according to the most recent Citigroup survey.

The bank also made clear in the Inflation Report that it can not work miracles and is unable to fully protect the British economy from any negative consequences from Brexit.

"This is the time to say nothing", said TD Securities' Rossiter.

"While downside risks to near-term demand from Brexit uncertainty and rising inflation should be watched carefully, nearly a year of data shows that these risks have failed to materialise in any serious way", said Pickering.

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