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UK interest rates held as economy shows signs of picking up – BBC News

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The Bank of England has held interest rates at 0.75% amid early signs of a pick-up in the UK and global economies.

In Mark Carney’s final interest rate meeting as governor, the Bank’s Monetary Policy Committee (MPC) voted 7-2 to keep rates unchanged.

Recent weak economic data had led to speculation rates could be cut, but Mr Carney said “the most recent signs are that global growth has stabilised”.

But the MPC said it was poised to cut interest rates if necessary.

Fewer companies in the UK are worried about Brexit, Mr Carney told a news conference following the rate decision. He added that survey data suggested UK growth will improve.

But he said: “To be clear these are still early days and it’s less of a case of so far so good than so far good enough,” he said, again referring to the UK economy.

“Although the global economy looks to be recovering, caution is warranted,” he said. “Evidence of a pick-up in growth is not yet widespread.”

He said the coronavirus outbreak was a “reminder of the need to be vigilant” when it comes to bumps in economic growth around the world.

Ready to cut

The nine MPC members have been split on rates since November.

Lower interest rates are good news for borrowers and bad news for savers because High Street banks use the Bank of England base rate as a reference point for many mortgages and savings accounts.

In a closely-watched decision, policymakers said they would monitor whether a recent improvement in business sentiment would lead to stronger economic growth.

The MPC said it stood ready to cut rates if there were signs that growth would remain subdued.

“Policy might need to reinforce the expected recovery in UK GDP growth, should the more positive signals from recent indicators of global and domestic activity not be sustained,” the MPC said.

Two members, Jonathan Haskel and Michael Saunders, argued that past business surveys of economic growth had not been reliable.

They continued to call for an immediate interest rate cut to 0.5%.

Weak UK growth

The Bank’s latest economic estimates suggest the economy did not grow at all in the final three months of last year.

Weaker growth at the turn of the year is also expected to drag overall economic growth down to just 0.75% in 2020. This is down from a projection of 1.25% last November.

The UK economy is expected to expand by 0.2% in the first three months of this year.

The Bank said a trade deal between the US and China that lowers some tariffs would provide a boost to the global economy.

An expected rise in spending by the government in the March Budget could provide a further boost to growth, policymakers said.

Ruth Gregory, senior UK economist at Capital Economics, said she also expected stronger growth ahead.

“Admittedly, the MPC left the door open to a rate cut in the coming months, but with the economy turning a corner and a big fiscal stimulus approaching, we suspect the next move in interest rates will be up not down, albeit not until next year.”

Brexit drag

The Bank said Brexit-related uncertainty had “weighed on investment” over the past few years.

Policymakers said companies’ Brexit plans had diverted money towards preparing for the UK’s departure from the EU that would otherwise be invested elsewhere.

This has reduced the UK’s long-term growth prospects by limiting the space in which the economy can grow without the risk of overheating.

This would force the Bank to raise interest rates, which would in turn slow the UK economy.

Policymakers now believe the UK’s potential growth has been reduced to 1.1%. This is down from 2.9% before the financial crisis and 1.6% over most of the past decade.

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Economy

Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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