Here’s our economics editor Larry Elliott on today’s news from the Bank of England.

The Bank of England has put back plans for an increase in interest rates after the weaker-than-expected performance of the economy in early 2018.

Although the Bank believes the soft patch in growth will prove temporary, seven of the nine members of its monetary policy committee adopted a wait-and-see approach to raising official borrowing costs and voted to keep them at 0.5%.

Two members of the committee – Michael Saunders and Ian McCafferty – said rising pay caused by falling unemployment required an immediate increase in interest rates.

The Bank’s decision – which was outlined in its quarterly inflation report – will come as no surprise to the City, which expected Threadneedle Street to ditch plans for tighter policy this month in the light of first quarter growth of 0.1%, a faster-than-expected fall in inflation and evidence that consumers were cutting back on spending.

The minutes of this week’s monetary policy committee meeting show that rate rises are still being planned in order to meet the government’s 2% inflation target, but the language was notably softer than in February when the Bank said policy would probably need to be tightened earlier and to a greater extent than the markets were expecting.

Three months ago, the Bank had been pencilling in growth of 0.4% in the first quarter and 1.8% for 2018 as a whole. The near-stalling of the economy has led the MPC to cut its annual growth forecast to 1.4% for this year....

That’s probably all for today; thanks for reading and commenting. GW

Ben Brettell, senior economist at Hargreaves Lansdown, believes UK interest rates may not rise until 2019!

He blames the return of the ‘unreliable boyfriend’ today:

Not for the first time, Mark Carney’s policy of guiding the markets as to what to expect has backfired. A month or so ago it looked like a May rate rise was a near-certainty. The Bank of England had upgraded its growth forecasts and in March two members of the MPC broke ranks and voted for an immediate rate rise.

Markets were then pricing in a 90% chance of a rate rise at this month’s policy meeting.

But since then things have changed. First-quarter economic growth was a disappointing 0.1%, and the ONS said the bad weather wasn’t to blame. Add in an (un)healthy dose of Brexit uncertainty, and the chance of a rate hike had dwindled to just 8% at the start of this week.

As such today’s no change decision wasn’t a surprise, and barely caused a ripple in the markets

Ranko Berich, head of market analysis at Monex Europe, says Mark Carney has once again disappointed those hoping for an interest rate rise - and the pound is paying the price:

“Once again, Mark Carney and the MPC have backed away from hiking interest rates mere months after hinting that a move was imminent. The MPC holding fire on hikes is not an issue in itself – the committee is data dependent, and recent UK data has been poor – but the dangers of making overly explicit statements on future policy moves have been made clear.

Carney’s warnings from February about rates rising earlier and to a greater extent now once again look like the promises of an unreliable boyfriend – and sterling is again suffering from being jilted at the rate hike altar.

Craig Inches, Head of Rates & Cash at Royal London Asset Management, thinks the Bank of England has fumbled the opportunity to raise interest rates today.

“In our view, the Bank has missed another opportunity to raise rates. Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank’s newly lowered forecasts, suggest.”

“Interestingly two members of the MPC also agree with us, while the press conference by Mark Carney and colleagues was in fact more hawkish than the headlines suggest.

Peter Dixon of German bank Commerzbank believes the Bank of England sounded rather more dovish about interest rate policy today.

He writes:

The forecast is conditioned on three rate hikes of 25 bps over the next three years and markets have slashed the probability assigned to a rate move in 2018.

That’s why the pound has fallen against the US dollar today; currently down 0.5% at $1.348.

Anthony Gillham of wealth manager Quilter thinks the media’s questions about Mark Carney’s unreliability hit a nerve today:

“Carney’s snap at the ‘unreliable boyfriend’ tag reveals the tension between the City clamour over interest rate changes and the real impact on households. Unsurprisingly, the Bank is probably feeling a little defensive that its own ‘forward guidance’ seems to have misled the City.

As a result he was keen to distinguish between the City and his other key stakeholder, UK households. He is right to do so, but the truth is that they’re inextricably linked.

The market expected a rise largely because it predicted the economy would be carrying more momentum and inflation would be running higher. Those predictions have proved overly optimistic, which is definitely a concern for households, and that is why rates are staying flat today.

Professor Costas Milas of the University of Liverpool thinks that Brexit uncertainty is helping to push Britain’s next interest rate rise further and further into the future.

He’s plotted the Bank of England’s GDP growth forecasts alongside economic policy uncertainty (based on the number of articles about economic worries in The Times and the FT).

It shows a “clear negative correlation”, he says (sagging growth and media angst about the economy go hand in hand).

Professor Milas adds:

Notice, also, that - unfortunately - current uncertainty has started picking up again. If this persists, August’s Inflation Report will trim further the growth forecast which will of course delay even further a possible hike.

Nice snap summary from Bloomberg’s Jill Ward:

And finally...

Q: The Office for National Statistics has just lowered its estimate of the UK trade deficit by a quarter - so how reliable is Britain’s data, and does it mean that the UK is still ‘reliant on the kindness of strangers’ [an old Carney quote]

Great question, says Mark Carney, who bats it across to deputy Ben Broadbent.

Broadbent explains that economic data can always be revised and updated as new information comes in, and economists update and refine their models. It’s a mistake to treat it as God-given and fixed.

That’s the end of the press conference.

Q: What impact would a hard Brexit have on the Bank’s economic forecasts?

Mark Carney replies that a hard Brexit would prompt a change the Bank’s forecasts. But such a scenario it’s not currently included in its economic projections, which are based on a ‘transition deal’ being agreed and implemented.

Handily for the Bank, the likely end of that transition deal comes beyond its current forecast horizon, so it doesn’t need to map the implications (yet....).

The Bank has, though, been ensuring that Britain’s banks are well capitalised to handle a Brexit shock.

Q: Today’s quarterly inflation report suggests that some business surveys are painting a better (and more optimistic) picture of the UK economy than the official GDP data. So which ‘soft’ data do you take seriously?

Deputy governor Ben Broadbent argues that there’s no contradiction between strong business surveys (which often track sentiment) and weaker GDP data (which measures actual output).

Those business surveys have dropped to lower levels, but they don’t point to anything as weak as 0.1% growth (the official first estimate of UK GDP).

Good points from Duncan Weldon of the Resolution Group:

Q: What’s the biggest challenge for your successor, governor? Brexit, perhaps?

The biggest challenge, and opportunity, for the country is the Brexit negotiations, Mark Carney replies. He won’t be drawn about his replacement, though (Carney is due to leave the Bank in June 2019).

Q: Today’s inflation report seems to suggest that interest rates will rise three times in the next three years - should households expect that?

Carney repeats his line that UK households and businesses broadly expect a rate rise this year, and two increases in the next 18 months. But it all depends on how the economy develops.

Q: Hasn’t your message on interest rates been diluted since February (when the Bank said rates would probably rise faster than markets expected)?

Our ‘core message’ hasn’t changed, Carney insists.

Q: Isn’t there also a danger that wage pressure will also be more muted than the Bank expects?

Regular pay has been inline with the Bank’s expectations, Carney replies.

Some snap reaction to Carney’s press conference:

Q: Are you failing to communicate to the UK public?

Carney says that the UK public have understood the Bank’s message in recent years, that interest rates will rise gradually as economic conditions merit it.

And he takes a wider view, saying that Britain is in a ‘different place’ than Europe (which has more spare capacity, and has only just fixed its financial system), but also a ‘different place’ than America (which doesn’t face the same scale of uncertainty over its future trading relationship).

People across the UK understand that, Carney adds.

Q: Are you worried that the ‘unreliable boyfriend’ tag will stick, as you’ve once hinted that a rate rise was coming, but not delivered?

The households and businesses we speak to don’t trade short sterling**, Carney shoots back. They want to know the general orientation of the economy, that the economy is healthy, and the likely path of interest rates.

(** - short sterling is a way of betting on the future path of interest rates).

The only people who throw the ‘unreliable boyfriend’ tag at me are in this room, Carney tells the press conference.

Now everyone else can use it too.

Q: The money markets have priced out an interest rate rise this year. Are you happy with that?

Carney repeats that the Bank is primarily concerned with households and businesses (suggesting that he’s focused on higher things than mere City traders and scribblers).

But the Bank is also watching the financial markets, of course. The Bank believes that the underlying momentum in the UK economy will reassert itself, but others can take a different view.

Deputy governor Ben Broadbent chips in too, saying the markets now suggest there is an 85% chance of a rate rise by November 2018.

Onto questions.

Q: In the past you’ve told us to watch the data, but today you’re saying that the economy isn’t as weak as the data suggests. So how should people judge what the Bank is going to do?

Carney doesn’t accept that the Bank is confusing people.

He says that the Bank of England speaks to businesses and individuals across the country. And they expect that interest rates will probably go up a couple of times over the next two couple of years.

The Bank can’t judge exactly how fast the economy will grow - that depends on a range of factors.

But if the economy is growing faster than its speed limit, then domestic inflationary pressures will probably intensify, so some tightening of monetary policy is probably needed.

The Bank’s monetary policy committee believes that the recent slowdown is temporary, Carney adds. But the sensible thing to do is to wait to see if this is born out by data in the months ahead, rather than hike today.

The weather may have improved, but Britain’s economy is still “clouded by Brexit uncertainty” says governor Carney.

The position should become clearer later this year as key decisions about Britain’s future relationship with the EU are made, he adds.

The key points from Carney’s statement thus far:

The overall economic climate in the UK looks ‘little changed’, Mark Carney says - perhaps a hint that we shouldn’t get too worried about the lower 2018 growth forecast.

The drag from Brexit on business investment has continued, but has not intensified, says Mark Carney.

On the consumer side, the bank believes that consumption will pick up as the real income squeeze comes to an end.

But the Bank believes that consumption will only grow half as fast as before the EU referendum, and just a third as fast as before the financial crisis.

• Overall, the climate is one of modest demand growth, with solid growth in net trade and moderate growth in business investment offsetting more modest growth in household spending, Carney says.
  

The Bank of England is holding a press conference now to explain today’s decision.

Governor Mark Carney is in the chair, accompanied by deputies Ben Broadbent and SIr David Ramsden.

You can watch it live here:

The pound has fallen, as City traders digest the Bank of England’s decision to cut its growth forecasts and left UK interest rates unchanged.

Having put its nose over the $1.36 mark in late-morning trading, sterling has now turned tail and fallen to $1.351. That’s close to a four-month low.

The Bank of England says uncertainty over Britain’s exit from the European Union is weighing on the economy.

The minutes of today’s meeting say:

Although business investment is still restrained by Brexit-related uncertainties, it is being supported, like exports, by strong global demand and accommodative financial conditions.

Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period.

A majority of the Bank’s policymakers wanted to leave interest rates alone until they know if last quarter’s weak growth was just a blip, or something more serious.

The Bank’s minutes say:

“The recent weakness in data for the first quarter had been consistent with a temporary soft patch, with few implications for ... the outlook for the UK economy,....

There was value in seeing how the data unfolded over the coming months, to discern whether the softness in Q1 might persist.”

The pound has crept back up over $1.36 against the US dollar, up 0.5% today, as traders brace for the Bank of England decision to hit the wires at noon precisely.

Excitement is mounting in the City, with just 30 minutes until the Bank of England announces its interest rate decision.

Most experts expect borrowing costs to remain unchanged. But you never know....central bankers have pulled a few surprises over the years (and a shock move always has more impact than a widely-trailed one).

Gambling site Betway is offering 6/1 on a rate rise today, and 10/1 on a cut!

Spokesman Alan Alger says:

We know that another rate hike should come at some point before the end of the year, and May looked very likely just a few weeks ago, though the combination of flagging inflation and underwhelming growth means we’re now just 1/5 for rates to remain at 0.5%.

Some commentators even believe that a cut to interest rates would serve the economy better than a rise, though Mark Carney and Co look unlikely to take such a daring decision at 10/1.”

There’s drama in Italy today, as two populist parties suddenly move closer to the levers of power.

Late last night, former PM Silvio Berlusconi dropped his opposition to an alliance between the right-wing, anti-immigrant League party, and the anti-establishment Five Star Movement.

Berlusconi dramatically declared that his Forza Italia party would not block a League-M5S coalition, seemingly clearing the way for the two parties to team up.

The move came after two months of deadlock following the last Italian general election, which failed to deliver a clear winner. Unless a government can be agreed today, a technocratic government could be imposed.

An alliance between M5S and the League has been seen as the worst scenario for Brussels, as both parties are inclined to unravel the painful austerity experienced by Italy in recent years.

Italian bond price have fallen this morning... however, they’re still looking healthier than before March’s election, suggesting investors aren’t that worried.

As Paul Donovan of UBS puts it:

The Italian president has suggested parties have until this afternoon to come up with a workable government before a technocrat government is imposed.

Former Prime Minister Berlusconi has suggested that Forza Italia may back a government led by the “anti-party” Five Star movement.

That would not be viewed as market friendly, but Italian investors have a certain amount of experience with political uncertainty.

Over in the City, shares in BT has slumped by 8% to a five-year low.

Investors are unhappy that BT expects revenues to fall by 2% this year, while earnings will also fall year-on year.

The telecoms group’s staff have also been shaken by the news that 13,000 jobs are being axed, as the company plans to quit its London HQ after 150 years. This will be partly offset by 6,000 new engineering hires.

Our media correspondent, Mark Sweney, says the shake-up comes after a ‘torrid’ 18 months for BT:

The telecoms company said the job losses would come mainly from back office and middle-management roles. About two-thirds of the job cuts will fall on its UK workforce of about 80,000, with the remainder coming from the 18,000 staff it employs internationally.

BT is also moving out of its central London headquarters in St Paul’s, where it has been headquartered since 1874 when the group was known as the General Post Office, as part of a wide-ranging restructuring.

BT has also announced a new plan to tackle its pensions deficit, including a payment of £4.5bn.

Ian Forrest, investment research analyst at The Share Centre, says BT has provided clarity, but questions and doubts over its future remain:

“While some parts of the consumer-facing businesses are seeing good growth and investors should be interested in the plans to restructure, the group is still under pressure on a number of fronts and therefore the shares are no better than a hold.”

Several commentators are pointing out that BT has lavished cash on buying sports broadcasting rights, only to now turn around and axe thousands of staff:

The pound could surge, or slump, depending on what the Bank of England does today.

Viraj Patel, a currency strategist at ING, has predicted that sterling could slump by two cents to $1.3350 if the Bank votes unanimously to leave interest rates on hold.

But if we get a surprise rate hike, the pound could surge by three cents to $1.3850, Patel estimates.

This chart of City expectations for today’s interest rate decision shows why the old ‘unreliable boyfriend’ line is doing the rounds again.

The upward spike in early February was prompted by the Bank of England; it said that monetary policy needed to be tightened “somewhat earlier and faster” than previously thought.

A clear hint that a rate rise was coming, in other words.

Stephanie Flanders, head of Bloomberg Economics, says the Bank of England has created a communications problem for itself.

She predicts the BoE will probably execute a ‘reverse-ferret’ (an old journalistic phrase for a bare-faced u-turn) today.

Expectations of a UK interest rate rise today have faded fast in recent weeks, says Lukman Otunuga, research analyst at FXTM.

That’s partly thanks to Mark Carney’s warning in April that Britain’s economic data was looking ‘mixed’

Only one month ago, the markets were predicting a more than 90% probability of a UK interest rate increase this month. Today, this probability has evaporated to less than 15%.

A crippling combination of negative economic data, disappointing growth figures and another reversal in tone from BoE Governor Mark Carney has been the driver behind these minimal expectations of a UK interest rate rise today.

Mark Carney was originally dubbed an ‘unreliable boyfriend’ nearly four years ago.

Labour MP Pat McFadden coined the tag during a select committee hearing, when he teased the governor for promising interest rate hikes, and then changing his mind.

As McFadden put it:

“We’ve had a lot of different signals. I mean it strikes me that the Bank’s behaving a bit like a sort of unreliable boyfriend.

“One day hot, one day cold, and the people on the other side of the message are left not really knowing where they stand.”

Governor Carney must feel such criticism is unfair. His ‘forward guidance’ was based on the promise that the Bank would only raise borrowing costs when the economic data justified it.

But the tag has stuck - mainly because the BoE held rates through 2014 and 2015, actually ended up cutting rates after the Brexit vote in 2016.