The Bank of England left interest rates on hold for a ninth month on Monday as evidence builds that the economy is slowing fast - so much so that a number of analysts predict a rate cut by the end of the year. Data just before the decision showed manufacturing output unexpectedly fell at its fastest rate in nearly three years in March. At the same time, debt-laden consumers appear to be running out of steam after five rate rises in 1-1/2 years. "The news on the real economy, namely weaker consumer activity and the global soft patch in activity, has outweighed the committee's prior fears on inflation prospects," said Philip Shaw, chief economist at Investec.
Short sterling interest rate futures rallied while the pound tumbled as expectations were raised that the next move in interest rates would be down.
Given signs a fragile recovery in manufacturing could be over and consumers are flagging, economists expect the central bank will have to revise down its growth forecasts when it publishes its quarterly Inflation Report on Wednesday.
The National Institute of Economic and Social Research forecast on Monday that the economy grew by a mere 0.4 percent in the quarter to April, the slowest rate in nearly two years.
But analysts emphasised that the BoE, whose central remit is to keep prices under control, will have to balance downside risks to growth against inflationary pressures.
The latest data showed headline inflation rose towards the bank's 2.0 percent target to hit a near 7-year high of 1.9 percent in March while factory gate prices rose more than expected in April. Wage growth has also accelerated.
Only a month ago many analysts had thought the central bank would raise borrowing costs by another quarter point this month to keep inflation down but news since then has been bleak and a growing number believe rates have now peaked at 4.75 percent.
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