The Bank of England's Monetary Policy Committee has voted to keep interest rates at 0.5 per cent.
The decision was widely expected, with markets earlier this week (8 May) pricing in a 92 per cent chance that rates will be held this month.
Whereas only one month ago markets were pricing in a 98 per cent chance of the Bank of England hiking interest rates in May, that figure has now fallen to just 8 per cent.
‘Back in early April, a rate rise at the May meeting was so widely predicted that it seemed nailed on. However, over the past few weeks, the picture has changed dramatically,’ said Sarah Coles, personal finance analyst, Hargreaves Lansdown.
At the end of April, the Office for National Statistics reported that the UK’s economy barely grew in the first quarter of 2018.
GDP growth was recorded as being just 0.1 per cent for the first three months of 2018, the lowest rate of growth since 2012 and well below forecasts.
Such a low rate of growth made the prospect of a rate rise ‘now close to zero,’ said Pantheon Macroeconomics at the time.
Further reducing the prospect of a rise were inflation and wage data. The Consumer Prices Index in March fell to 2.3 per cent, down from 2.7 per cent in February. This fall in inflation was larger than predicted, further strengthening the case against the Bank of England upping rates in May.
While keeping rates low may be the best option for the economy as whole, savers hoping for better returns on their deposits will be disappointed.
‘This is yet another ample demonstration of the futility of trying to guess the date of the next interest rate rise, and how dangerous it is to base your savings strategy on unreliable predictions,’ noted Cole.
‘Anyone who has left their savings sitting in an easy access account with a dismal rate, waiting to move their money after a rate rise, is highly likely to end up paying the price for their optimism.’
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