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The Bank of England is expected to stand pat on rates this week, ending a significant u-turn in the outlook for the British central bank.
In November, the BoE raised rates for the first time in over a decade, and in February it said it might need to raise rates again at a faster rate than initially estimated by the markets, given the nation's persistent productivity issues. However, late in April, data began to raise doubts. Inflation declined faster than the BoE anticipated and the economy expanded at its slowest annual clip rate in five years in early 2018.
Surprisingly weak economic data and cautious statements Government Mark Carney have killed off what was perceived to be near-certain bets of an interest rate hike until a few weeks ago.
Since Carney became part of the BoE in 2013, he indicated several times that rates were likely to climb, only for economic data to progress in the wrong direction. With the prospects for UK's economy cloudy and the terms of Britain's exit from the European Union far from being finalized, Carney is expected to hedge his bets on Thursday.
The biggest task for Carney will be to keep the prospect of a further interest rate increase this year believable for investors, who feel misled by a slowdown in the economy that may be temporary and by the BoE's changing guidance.
The BoE could opt to shrug off the recently weak growth and take a longer-term view, with unemployment at its lowest since 1975 and some measures of wage growth edging up.
The pound tumbled to its lowest level since January against the U.S. dollar on Friday as markets weighed in diverging prospects for growth and interest rates both in the UK and the U.S.
