Bank of England holds rates for another month

Bank of England workers to go on strike

The Bank's rate-setting committee voted by 6-2 to leave official borrowing costs at their all-time low of 0.25 percent, according to minutes from their meeting released on Thursday.

"The speed limit of the economy has slowed", he said on Thursday.

However, despite the downgrade to its growth outlook, the rate-setting monetary policy committee (MPC) also gave a more hawkish signal that rates could rise faster than markets are now pricing.

The BoE cut its estimate for 2017 GDP growth to 1.7% from a forecast of 1.9% given three months ago, it said in a report accompanying the latest monetary policy update.

CPI inflation rose to 2.6% in June from 2.3% in March, as expected.

"The chances of a 2017 rate hike now look dead and buried", said Jake Trask, foreign exchange research director at OFX in London.

In the USA, the Federal Reserve is on course to raise short-term rates later this year, while the European Central Bank is to begin phasing out its huge bond-buying programme in 2018.

"There is a genuine debate in the bank (over raising rates). but we're not expecting any hikes in the next year", said Societe Generale currency strategist Alvin Tan.

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Carney said "the assumption of a smooth transition to a new economic relationship with the European Union will be tested" and he said investment levels in 2020 were set to be 20 percentage points below a BoE forecast before the Brexit vote.

Longworth, who resigned from the British Chamber of Commerce (BCC) to serve as Chairman of the Vote Leave Business Council before the Brexit vote, said that membership of the single market was stopping the UK Government from growing the economy.

The Bank said it might raise borrowing costs a bit more than investors expect over the next three years.

Policymakers agreed however to increase cheap lending for retail banks before the expiry of the Term Funding Scheme next February.

Speculation over the likelihood of the Federal Reserve raising interest rates again before the end of the year could also put pressure on risk-sensitive Australian Dollar, with a strong USA non-farm payrolls report having the potential to send the GBP AUD exchange rate to a fresh high. Additionally, expected wage growth - which is a major factor in the BOE's monetary policy decisions - was slashed to 3% from 3.5% for 2018.

A series of surveys of Britain's manufacturing, construction and services sectors published this week suggested the economy remained in a low gear in July.

There was a slight downgrading of forecasts for wages growth which will tend to lessen the scope for a near-term increase in rates.

Forty per cent of the Bank's decision maker panel, which collects information on business conditions, is impacted by Brexit supply chain issues and other uncertainties, the Governor adds. Wage growth was also revised down, with the bank now expecting wages to contract this year by 0.5% on an inflation-adjusted basis. As the effect of rising import prices on inflation diminishes, domestic inflationary pressures gradually pick up over the forecast period.

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