Markets expect rates to stay on hold next month

THE Bank of England is expected to hold interest rates next month, markets believe, cancelling a planned hike after Mark Carney warned that there is no rush to tighten monetary policy.

At the start of this week investors were almost certain that the base rate would rise from 0.5pc to 0.75pc in May’s Monetary Policy Committee (MPC) meeting, but have abruptly changed their forecasts after the Governor’s comments in Washington DC on Thursday night.

Another MPC member, Michael Saunders, gave a speech explaining why rates should rise soon – and why they could keep going up more quickly than markets anticipate. But his words were ignored by traders, who have taken Mr Carney’s caution as a sign of what to expect next month.

The City was taken aback by the Governor’s comments that he doesn’t “want to get too focused on the precise timing, it is more about the general path” and that he is “conscious that there are other meetings over the course of this year”, which caused a series of top economists to change forecasts. David Page, at Axa, said: “On balance, we revert to our original expectation of a more cautious hike in August.” But ING’S James Smith thinks it will still happen: “We still narrowly think it will hike rates next month, although this has become much more of a 50:50 call.”

The MPC vote was split in March when Mr Saunders and Ian Mccafferty voted to raise rates.

Speaking after the Governor’s comments, Mr Saunders said the weaker economic data should not derail expectations for rises.

Earlier this week markets had placed an 85pc probability on a hike. Following Mr Carney’s comments it moved to below 50pc.