Rate hikes still on the table despite Brexit uncertainties, says Bank

UK  US Economic Calendar- GBP  USD Event Risk

The BoE upgraded its forecast for growth in the world's fifth-largest economy to 1.5 per cent, up from the decade-low 1.2 per cent it predicted in February, largely reflecting better global economic prospects.

The Bank of England (BoE) has held interest rates at 0.75% due to a growth spurt in Brexit stockpiling however, the Bank warned the boost will be temporary as there is still much uncertainty.

Mr Carney said: "We could see a period where the economy is growing and pressures continue to build despite this uncertainty".

During the first quarter of 2019 the British economy probably grew by a relatively strong 0.5 percent due to businesses building up stocks ahead of Brexit, the BoE said - faster than the 0.2 percent growth it forecast in February. That path is "unequal" to achieving the BOE's inflation remit, the Governor said. If "that resolution is some form of arrangement, with some form of relatively smooth transition to it, it will require interest rate increases over that period and it will require more and more frequent interest rate increases than the market now expects". "Uncertainty has had a particularly pronounced effect on business investment, which fell in every quarter in 2018 and is projected to decline further over coming quarters", the report said.

Howard Archer, chief economic adviser to the EY ITEM Club, an economic forecast group in London, told Xinhua: "Clearly Brexit has weighed on the decision to keep interest rates at 0.75 percent". Britain's departure from the European Union, lengthy due for March 29, was delayed final month till October 31, except parliament, approves a deal sooner.

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The Bank increased gross domestic product (GDP) growth outlook to 1.6% in 2020, 2.1% for 2021 which is up from 1.5% and 1.9% previously.

However, the BOE expects that the United Kingdom growth surge will prove to be short-lived as the impact from stock building eases, with the economy settling back into its previous pattern in the three months through June.

The Bank raised its forecasts for GDP growth while warning of the possible impact of Brexit.

The European Central Bank is meanwhile expected to keep eurozone borrowing costs at historic lows until at least the end of 2019.

"Future interest rises will be "limited and gradual", according to the Bank, but not as limited and gradual as the markets are now pricing in", Archer added. On the plus side, a 'no deal Brexit looks to have been averted for now and there are hopes of progress in the talks between the ruling Conservatives and the opposition Labour Party.

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