BOE to hold interest rates at 0.25%

The MPC vote split 5-3 at the last decision to keep rates unchanged but since then the central bank's chief economist Andy Haldane has signaled his readiness for a hike to curb the effects of high inflation.

Market participants look ahead to the release of a duo of economic reports on Thursday, which may offer further guidance on the strength of USA economy.

In its closely watched trio of releases - its rate decision, monetary policy statement and quarterly inflation report - the United Kingdom central bank said economic growth and wages remain sluggish in the near term because of uncertainty over the U.K.'s exit from the European Union.

Bank governor Mark Carney said: "We're going through a sluggish period in the economy".

He said it was now "quite hard to argue that they shouldn't reverse the 0.25 percentage point cut" given the continued drop in unemployment, which now stands at the rate the Bank assumes will start to generate inflationary pressures as a tighter labour market drives up pay.

"The door is still open to a hike, but it doesn't look imminent", Alan Clarke, a rate strategist with Scotiabank said, as quoted by Reuters.

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He insisted that borrowers would be able to survive a hike in interest rates but warned that rates could rise faster than now expected.

By 2pm BST, the pound was 0.78% lower against both the dollar and the euro, trading at $1.3118 and €1.1062, as the common currency moved towards its highest level against sterling since November past year.

The price of ten year United Kingdom government bonds also dropped as investors expected the currency to fall. Still the BoE is basing its long-term forecasts under a "smooth" Brexit assumption according to Carney.

'While the current picture remained one of an economy showing overall resilience in the face of concerns about the outlook, the subdued level of business optimism suggests it's likely that growth will at least remain modest and could easily weaken in coming months.

He said uncertainty about Brexit - in particular lower investment by companies - meant the economy could not grow as fast as before without pushing up inflation.

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

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The fall in the value of the pound has caused inflation to spike - it is expected to peak at 3 per cent in the autumn. Standing out was the considerable reduction in wage growth forecasts to 3.0% annually for 2018 from 3.5% just two months ago.

"As a outcome, the household saving ratio fell from 3.3% to 1.7%, its lowest level since the series began in 1963".

But a raft of weaker data - as well as deep uncertainty about the impact of Brexit - called that view into question.

The policy makers said United Kingdom wages are expected to "remain subdued" for the rest of the year, while also cutting its salary growth for 2018 to 3% from 3.5% expected previously.

There were only marginal changes to the latest inflation forecasts from those produced in the May inflation report.

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