Cold Weather to Blame for Low Int Rates

LONDON (AP) -- The Bank of England decided Thursday to not raise interest rates again and cut its forecast for British economic growth this year, blaming the downgrade almost entirely on the cold and snowy weather that gripped the country in late-winter.

Following a run of weak economic data, the bank's Monetary Policy Committee voted by 7 votes to two in favor of keeping the main interest rate unchanged at 0.5 percent. Until a few weeks ago, the overwhelming view in the markets was that the panel would raise it by another quarter point to 0.75 percent. Bank of England officials including Governor Mark Carney had appeared to endorse that expectation.

That would have been the bank's second rate hike in six months following November's, which was the first in a decade. And it would have taken borrowing rates to their highest since almost nine years ago, when the central bank was slashing rates to help the economy through its deepest recession since World War II following the global financial crisis.

Despite their decision to hold fire on Thursday, policymakers insisted that further rate increases remain on the cards. However, the bank's quarterly economic forecasts suggest that the next increase may not happen until the latter part of this year.

The delay in rate increases has been due to two factors.

First, official figures showed that the British economy barely grew in the first three months of the year. The 0.1 percent quarterly growth recorded was markedly down on the Bank of England's forecast of around 0.4 percent and was, according to the bank, almost entirely due to the wintry weather -- dubbed the "Beast From the East" -- in late February and early March. Though it described the first quarter outcome as a "soft patch" with few longer-term implications, the bank has had to revise down its projection for annual economic growth to 1.4 percent from 1.8 percent previously.

The second reason the central bank opted against another rate increase is that inflation has fallen by more than anticipated. In the year to March, consumer prices were up 2.5 percent, markedly down on the bank's projection of near 3 percent. That matters as the rate-setting body's primary mission is get inflation close to 2 percent.