What's going on?

The Bank of England (BoE) followed its US counterpart in keeping the UK�s interest rates unchanged on Thursday. But despite lowering its economic growth forecast, it may still increase rates later this year.

What does this mean?

The UK�s central bank now think the country�s economy won�t grow at all this quarter; back in March, it was predicting 0.2% growth compared to the first quarter of 2019. A still-uncertain path out of the European Union is partly to blame: British businesses stockpiling products ahead of a now-delayed Brexit has led to a dearth of new orders for manufacturers as companies chow through their existing stashes.


But workers� wages are rising faster than the prices of goods and services, which were themselves rising faster than the central bank�s target � although inflation has now cooled down and is expected to stay chilled. That may have persuaded the BoE to hold off rate increases for now � but in the event of a smooth Brexit, gradual rate hikes remain on the cards.

Why should I care?

For markets: Higher-minded.

In remaining open to higher interest rates, the UK�s skirting the battle brewing between the US, China, and the eurozone � each of which are looking to lower their rates (and perhaps end up with a cheaper currency, attractive to foreign buyers of their wares). The pound�s value fluctuated on Thursday as investors weighed potential higher rates to come against a lower economic growth forecast. But investors gobbled up Norwegian kroner after the country�s central bank announced its third rate hike in a year.

The bigger picture: From macro to micro.

Data out on Thursday showed that recent European retail sales weakness washed up on British shores in May � supporting the BoE�s lowered growth forecast. One victim of the slowdown is electronics retailer Dixons Carphone, which on Thursday warned that less frequent consumer smartphone upgrades would weigh on its annual earnings � leading investors to dial its shares down 5%.