The Bank of England has kept interest rates on hold at 0.75%after declaring that economic growth in the UK has been stronger than expected.

The Bank is predicting that inflation will rise slightly faster than previously predicted, reaching 2.1% in the coming months, before falling back to 1.7% in the middle of next year.

It pointed to current market thinking that interest rates will not be put up for two and a half years, with the Bank rate not reaching 1% until the final quarter of 2021 as its target rate is 2%.

But at a news conference to accompany the publication of its quarterly inflation report, governor Mark Carney said there may be “more and more frequent interest rate increases than the market expects” if its updated forecasts prove correct.

Those are based on a smooth Brexit outcome.

The Bank believes the UK’s unemployment rate will fall to 3.5% – the lowest on record.

It warned that “the economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular the new trading arrangements between the European Union and the United Kingdom, whether the transition to them is abrupt or smooth, and how households, businesses and financial markets respond.”

The Bank says it now expects the economy to have expanded by 0.5% in the first three months of the year – more than double its previous prediction. However, it says it’s not clear what is driving that growth.

In the inflation report, the Bank says the growth is being driven by strength in the manufacturing sector. However, it also reports that surveys of companies saw many claiming that growth had stalled at the start of the year, raising the question as to where the growth would be coming from.

One of the suggestions put forward by the Bank is that stockpiling ahead of Brexit has led to the appearance of economic growth. Many companies across the UK,ranging from car companies to food manufacturers and pharmaceutical suppliers,stored extra products and components because of fears that supply chains would be disrupted by a potential no-deal Brexit.

The report says that any boost from stockpiling “is likely to temporary”and adds that if companies now start to either sell off that stock, or simply stop building up a stockpile, then the pace of economic growth is bound to fall in the second quarter of the year.

The Bank has also raised its prediction for economic growth for the whole of 2019 to 1.5%, up from 1.2% in its last report.

Despite those forecasts, the Bank says that “underlying demand growth”appears to have slowed over the past year, driven by uncertainties over Brexit and also by a slowing global economy.

It says that business investment has fallen in each of the past four quarters,with companies particularly reluctant to invest in computer technology, machinery, intellectual property and transport.

At the same time, the average employee has increased the number of hours that they work, with the Bank reporting “a sharp pickup in the number of employees reporting that they had unusually worked more than 45 hours”.

Article sourced from Sky News website on 2nd May 2019 in an article by Adam Parsons . Original full article can be viewed by clicking link below

https://news.sky.com/story/bank-of-england-sees-no-interest-rate-rises-until-2021-11709309

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