Interest rate rise on hold as service industries falter

Purchasing managers’ index rises by less than anticipated

The Bank of England
(Image credit: Niklas Halle'n/AFP/Getty Images)

The Bank of England is almost guaranteed to leave interest rates unchanged at 0.5%, analysts say, after news of poor service sector activity in April ended any remaining justification for a rise.

The IHS Markit/CIPS services purchasing managers’ index rose to 52.8 in April, an increase on 51.7 in March, but not as strong as hoped. Economists had expected a rebound in April after activity was curbed by March’s bad weather.

“The disappointing services data will add to expectations that the MPC [Monetary Policy Committee] will take its finger firmly off the rate hike trigger,” said Chris Williamson of IHS Markit. “Any further slowing will also raise questions as to whether the November rate hike may have been ill-timed.”

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Analysts and investors had been very confident the Bank would raise the rate to 0.75% on 10 May – The Times says the markets put the chance at 90%, but that has now diminished to just 10%.

The poor performance of service industry is just the latest blow, after last month’s weak growth and inflation figures, which had already made a rate rise seem unlikely.

The pound, which had been rising on expectations of a rate rise, has fallen back in recent days.

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