Carney: UK's consumer slowdown has begun

The UK economy shrugged off expectations of a recession after last year's referendum, and chalked up one of the fastest growth rates among major rich economies. On the weakening economy, which saw GDP increase only 0.3 per cent in the first quarter of 2017 compared to 0.7 per cent in the last three months of 2016, the bank said, "The slowdown appears to be concentrated in consumer-facing sectors, partly reflecting the impact of sterling's past depreciation on household income and spending".

"The MPC's projections continue to be conditioned on a smooth transition to an average of possible outcomes for the UK's post-Brexit trading arrangements", Carney said.

But Mr Carney warned that improving fortunes were based on a "smooth" adjustment when it came to European Union withdrawal that would see a transition period to avoid a cliff edge departure. If the Bank's outlook for pay this year proves correct, it would leave wages falling in real terms - once adjusted for inflation.

"There's a lot resting on the assumption that the sustainability of growth and pick-up in wages will be aided by a smooth Brexit", said Tim Graf, head of European macro strategy at State Street Global Markets.

"It could also be as simple as there is right now a silent period, so to speak, when it comes to the Brexit negotiations because of the United Kingdom election".

For this reason, it's unlikely Mark Carney or the Bank will be particularly bullish today and with political uncertainty both in Westminster and in the UK's relationship with Brussels, there's a slim chance that markets will have to rush to price in expectations of imminent policy tightening.

However, that statement was based on the market view over the 15 working days to 3 May, which was for only one rate rise to 0.5% over the next three years. It said that around 500,000 jobs could have been at risk if the bank had not cut interest rates in August.

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The BoE's Monetary Policy Committee (MPC) voted 7-1 in favour of keeping interest rates on hold at their record low 0.25 per cent this month, as expected in a Reuters poll of economists.

USA academic Kristin Forbes, who leaves the MPC at the end of June, again voted to raise rates to 0.5 percent.

The BoE has already said that certain MPC members other than Forbes are ready to hike, saying in the minutes of its last meeting: "Some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted".

Tom Stevenson, investment director for Personal Investing at Fidelity International, said there were "no big surprises" in the Bank of England's announcement.

And while inflation hit a higher-than-forecast 2.3% in February, the recent rebound in the pound since the snap General Election was called might rein in price rises later in the year.

Inflation in March was at 2.3%, according to the Office for National Statistics, above the bank's target of 2%. He expects real wage growth to eventually pick up to 3.5 percent next year from around 2.0 percent at present as businesses find it harder to recruit staff, but added there would be "consequences" if it does not.

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