As a result of this backdrop, Mumford suggests low interest rates are here to stay, as does Trevor Greetham, head of multi-asset at Royal London Asset Management who said “sterling weakness is pushing inflation higher but interest rates are likely to stay close to zero while EU exit negotiations are under way”.
But Don Smith, CIO at Brown Shipley, believes a rise in inflation could see markets begin to anticipate the bank dropping its commitment to the historic low rates of 0.25%.
He said: “Today’s report marks a distinct softening in the Bank of England’s pessimism on the near term impact of Brexit on the UK economy.
“Against this stronger backdrop, and with inflation rising over the course of the year, it’s only a matter of time before expectations that the BoE may reverse its monumental decision last August to lower rates to just 0.25%, begin to sweep through the UK’s financial markets.”
The MPC also unanimously agreed to continue with a £10bn programme buying corporate bonds and will continue to hold £435bn of government bonds.
