Pound slides as Bank of England says Brexit is hitting pay rises and investment - as it happened

Rolling coverage of the Bank of England's interest rate decision, and governor Carney's press conference

• Pound hits nine-month low
• Mark Carney: Brexit uncertainty is hitting businesses
• Carney: Some bosses are refusing pay rises because of Brexit
• Bank of England left interest rates unchanged and cut growth forecasts
• Why the Bank left rates on hold
• Any questions about today?

5.36pm BST

PS: we asked you all what question you'd like answered today - here's the answer!

Inflation is when prices rise. Deflation is the opposite - price decreases over time - but inflation is far more common.

4.00pm BST

OK, time for a recap, with links to the key points in this liveblog.

Inflation Report forecasts in a nutshell. Growth slightly lower than previously expected. Inflation the same. Lower unemployment rate. pic.twitter.com/KTRDetXoJE

"It is evident that uncertainties about the eventual relationship are weighing on the decisions of some business.

We see it directly in the macro-economic numbers, investment has been weaker than we otherwise would have expected."

There's an element of Brexit uncertainty that's affecting the wage bargaining.

Some firms, a material number of firms, are less willing to give bigger pay rises as it's not as clear what their market access is going to be over the next few years."

I asked Carney if Brexit had ALREADY damaged econ. In short:
Yes. Investment weaker, businesses nervier" "consequences starting to build"

Last wk Chancellor told me Brexit was partly to blame for weak GDP. Today Carney echoes him. These aren't forecasts. "It's happening now"

Related: Bank of England keeps interest rates on hold despite inflation fears

3.56pm BST

If every cloud has a silver lining, then the Brexit uncertainty is a gift to wealth managers.

Swiss Bank Julius Baer has got the message - it is opening new offices in Manchester, Leeds, Glasgow and Belfast to target nervous ultra-rich Brits.

As Banks begin "Brexodus" from London: Swiss bank Julius Baer opens UK offices to seize on Brexit nerves https://t.co/hvBAQbBQQW

3.11pm BST

Here's some reaction to today's flurry of news from the Bank of England.

Roland Rudd, chairman of the pro-EU Open Britain group, said Mark Carney has shown the damage that a hard Brexit will cause.

"This report paints a dismal picture of what hard Brexit is doing to our economy. Downgraded growth, higher inflation and modest wage growth all point to lower living standards for the British people.

"Nobody voted in the referendum to become poorer. The Government's top priority in this process must be to protect jobs and living standards.

"News that the Bank of England has lowered its growth forecast for 2017 and voted to maintain interest rates at 0.25% reiterates the economic uncertainty that the UK is facing, as the landscape continues to be uncertain with Brexit on the horizon.

The BoE's perspective is not dissimilar to our analysis, and Dun & Bradstreet are maintaining a 'deteriorating' risk outlook for the UK until there is more clarity on how Brexit will impact businesses operating in the UK market.

The Bank of England voted to leave Bank Rate unchanged at 0.25% at the August MPC meeting, in line with expectations. Only two Committee members, Ian McCafferty and Michael Saunders, dissented in favour of a 25bp hike on this occasion.

This was despite Andy Haldane having said in June that 'provided the data are still on track' a hike 'would be prudent moving into the second half of the year'. Evidently, it appears as though Haldane, the BoE's chief economist, judges that the disappointing Q2 GDP growth rate of 0.3% q/q had knocked the data off track.

The outlook presented by the BoE today was not very different to prior expectations although perhaps Governor Carney's opening comments highlighted the economic risks posed by Brexit more than has hitherto been the case. However, the overall view of the economy remains broadly similar to May. But market expectations of a rate hike fell slightly following the publication of the MPC minutes which showed the vote to keep rates on hold widened from 5-3 to 6-2, though this was due more to a change in the Committee's composition than a change in view on economic prospects.

2.38pm BST

Our economics editor Larry Elliott believes the Bank of England is playing with fire by continually hinting at rate rises, but never delivering.

He says the Bank keeps talking like a hawk, but acting like a dove. And eventually traders will lose patience, and sell the pound hard.

Threadneedle Street's continued failure to understand the link between unemployment and wages means it is quite likely that when the next inflation report comes out in November the message will be the same: no rate rise but the promise of an imminent get-tough approach.

This is all very well, but history suggests that talking up the value of a currency only works for so long. Eventually, markets will decide that the Bank is all gong and no dinner. And the pound will fall unless they are tossed some raw meat.

Related: The Bank keeps hinting at a rate rise. Markets will only listen for so long

2.21pm BST

Back in the markets, the pound has slumped to a new nine-month low against the euro.

Sterling is now trading at just a1.106, down from a1.20 this morning, as traders respond to the Bank of England's downgraded forecasts for growth and wages.

"With UK growth forecasts downgraded by the Bank of England, the odds of an interest rate rise this year have now lengthened considerably."

With the UK on slightly uncertain ground, politically and economically, a rate rise any time soon remains highly unlikely."

1.42pm BST

Q: There are reports that the UK government might push its target for balancing the budget back to 2027 - what impact would that have for monetary policy?

We don't change our views on fiscal until fiscal change, says Carney snappily. So, the Bank will 'take stock' once the autumn Budget is released.

1.40pm BST

Q: Does the strike at the Bank of England over pay hint at a broader issue of public anger about the state of the economy?

Carney says he 'absolutely recognises' that difficult decisions have been taken over pay at the Bank over several years.

We are trying to cushion the impact of Brexit by keeping people in work....

1.35pm BST

Q: If Britain's transitional agreement doesn't include access to the single market and the customs union, will economic growth be damaged?

Relative to the current arrangements, in the medium term.... anything that reduces access to aspects of our largest trading partner, is likely to reduce the level of economic activity in this country, Mark Carney replies.

I asked Carney if Brexit had ALREADY damaged econ. In short:
Yes. Investment weaker, businesses nervier" "consequences starting to build"

1.30pm BST

Matthias from the Dutch Financial Times reminds Mark Carney that there are staff protesting outside the Bank of England today, because they only received a 1% pay rise.

This is an important issue - should the UK government drop its 1% cap on all public sector pay?

Carney asked a question from a journalist the "Dutch Financial Times". He responds by calling him a German.

Mark Carney replies to question from Dutch @FD_Nieuws correspondent with comment about "your German readers" #shotsfired.

1.23pm BST

Carney downplays the idea that the Bank of England might raise interest rates in 'baby steps' of less than 0.25%. That's not been discussed.

1.20pm BST

My colleague Katie Allen asks Mark Carney to explain why the Bank of England has cut its wage forecasts today.

Governor Carney says that 'softer' productivity growth is one factor, meaning that there is simply less to share between owners and workers.

We are picking up across the country that there is an element of Brexit uncertainty that is affecting wage bargaining.

Some firms, potentially a material number of firms, are less willing to give bigger pay rises given it's not as clear what their market access will be over the next few years.

Carney: There is an element of Brexit uncertainty affecting wage bargaining around country. Some firms less willing to give bigger pay rises

1.13pm BST

We are in the teeth of a squeeze on consumers right now, Carney warns, but it will feel better in the new year.

Deputy governor Ben Broadbent chimes in too - saying things are "particularly tough" right now, as rising inflation hits earnings.

We are at the zenith of pass-through effects, and the hit to real incomes.

1.10pm BST

Q: What are you hearing from businesses about a Brexit transition deal?

There is a widespread desire from countries across the UK economy for a transition period after Brexit, says Carney.

There is an understanding that market access, product standards, authorisation issues, data standard issues...will affect both side of the integrated economy between the UK and the EU 27.

1.07pm BST

Q: How can you be sure that the UK economy can handle higher interest rates?

Households are less vulnerable than there were, says Carney, although some are certainly vulnerable. Most could handle higher interest rates.

1.05pm BST

Q: How is the MPC thinking about that first interest rate move back to 0.5%?

Would it be the first stage in a tightening cycle, or just a one-off move to remove last August's stimulus after the Brexit vote?

1.03pm BST

Q: Is the City underestimating the timing of the first interest rate hike, or the pace of hiking, or both?

Carney declines to drop any hints about when interest rates might go up (for the first time in a decade).

Carney, asked about timing of a UK rate hike: not appropriate for me to tie hands of the monetary policy committee by expanding on our view

Carney: If Brexit doesn't hit the economy, stimulus will withdrawn faster than the market expects.

12.59pm BST

Q: What's the Bank's view of the UK economy's economic potential today?

Carney says the 'big picture' is that Britain's potential growth has moved down.

12.57pm BST

Helia Ebrahimi of Channel 4 spots that Bank of England has changed its language.

Q: Three months ago, you said that the Bank expected a smooth Brexit. Now you talk about households and businesses expecting a smooth Brexit. So have you lost faith, and what happens when they do too?

"You're clearly much cleverer than the MPC," Carney tells reporter after a question about a change in BoE wording on Brexit transition. Ouch

12.51pm BST

Q: How worried are you about consumer credit levels?

Governor Carney says the UK public are already 'adjusting' to the recent fall in real wages. He expects consumer spending to rise in line with earnings, rather than being fuelled by credit.

Carney: Consumers adjusting to squeeze on real incomes and we expect consumption growth to be in line with incomes, not reliant on borrowing

12.47pm BST

Crumbs. The Bank of England now believes that UK investment spending in 2020 will be 20% lower than expected in 2016, before the EU referendum.

Blimey.

Carney - MPC forecasts level of investment in 2020 to be 20% below that projected before the referendum.

12.45pm BST

Q: Are you less confident that Britain will get a smooth Brexit?

Carney says that Donald Tusk, the EC president, has already pointed out that a disruptive Brexit isn't in anyone's interests.

12.43pm BST

Onto questions.

Q: Has the economy now been damaged by the Brexit vote?

12.39pm BST

Carney also hints that interest rates could rise faster than the financial markets expect, if the economy falls a path consistent with today's forecasts.

12.38pm BST

The process of leaving the EU is affecting the UK economy, Carney continues.

Some companies are delaying their decisions about investment and entering new markets, he explains, adding that Britain's 'supply capacity' is already being affected.

12.35pm BST

BoE's Carney presenting latest forecasts, says Bank projections assume a "smooth" Brexit transition but sees uncertainty effect in meantime pic.twitter.com/cFQ1qN3DJN

12.35pm BST

The uncertainty created by Brexit is weighing on growth, Carney continued, citing how rising inflation has hurt consumer spending.

Business investment is likely to be below average, he predicts, with "bad consequences" for productivity, capacity and wages.

12.32pm BST

Mark Carney begins his press conference by warning that Britain is beginning to adjust to a 'new and uncertain' relationship with the European Union.

The Bank cannot prevent the "weaker real incomes" which this new trading relationship is likely to bring, he warns. But it can influence the playoff between job losses and price rises.

12.30pm BST

Bank of England governor Mark Carney has just arrived for his press conference to explain today's decisions. You can watch it live here:

12.27pm BST

The pound is also falling against the euro.

It has dropped to a1.11, from just over a1.12 this morning.

12.24pm BST

Here's my colleague Katie Allen's take on today's Bank of England decision.

"If the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.

"All members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent."

After Bank of England held rates at 0.25% and cut growth and wage outlook, now waiting for governor Mark Carney to elaborate from 12.30 pic.twitter.com/zv4eIanqn6

12.21pm BST

The pound has fallen sharply as the City quickly digests the Bank of England's decision to leave UK interest rates on hold.

Sterling has shed half a cent against the US dollar to $1.3165, having hit an 11-month high this morning.

12.18pm BST

More bad news; the Bank of England has downgraded its forecasts for wage growth.

*BOE CUTS WAGE GROWTH FORECASTS, SEES 2018 AT 3% VS 3.5% IN MAY

12.15pm BST

Six of the Bank of England's policy makers felt that the UK economy was too "sluggish" to handle higher interest rates.

Governor Mark Carney, deputy governors Ben Broadbent and Jon Cunliffe, all voted for "no change" along with chief economist Andrew Haldane, and external members Silvana Tenreyro and Gertjan Vlieghe.

GDP growth had been sluggish and was expected to remain so in the near term. With some business survey expectations balances having weakened, there remained the possibility of a further softening in activity.

Weak data on car registrations and the housing market, together with the fall in consumer confidence, could signal weaker consumption than in the central projection. At the same time, increased domestic uncertainty was likely to act as a drag on investment, and there was a risk that this effect would be larger than had been assumed in the forecast.

Although household consumption had slowed, recent indicators such as retail sales had not suggested that a sharp downturn was underway. Growth in business investment and net trade, supported by strong global growth, appeared on track to compensate for weaker consumption growth.

While the projection for demand growth was modest, growth in potential supply was likely to be materially weaker than over the pre-crisis period throughout the forecast. Employment growth had strengthened, and if it continued to be strong, slack would be absorbed at a faster pace than in the central projection. The withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive.

12.10pm BST

The minutes of the Bank of England's meeting are online here:

12.06pm BST

Importantly, the Bank of England has also cut its growth forecasts.

It now expects the economy to grow by 1.7% this year, down from a previous forecast of 1.9%.

#Breaking Bank of England says UK economy will remain "sluggish"; cuts growth forecasts to 1.7% in 2017 and 1.6% in 2018 pic.twitter.com/gJgISBuiIJ

Bank of England downgrades UK growth forecast for this year and next.

12.02pm BST

Michael Saunders and Ian McCafferty are the two hawks who wanted to raise borrowing costs. They've both external members of the Bank's MPC.

Andy Haldane, the Bank's chief economist, decided to vote for 'no change', dashing speculation that he might have voted for a rate hike.

12.00pm BST

Newsflash! The Bank of England has voted to leave UK interest rates unchanged at their current record low of 0.25%, in a split decision.

Two members of the Monetary Policy Committee voted to raise borrowing costs to 0.5%, but were outvoted by the other six members of the committee.

11.56am BST

Just time for one last prediction.....

#BoE hike unlikely today. For a start, inflation down back in to line with Bank's May forecast since June's 5-3 vote. pic.twitter.com/bnzZXAJ0gD

11.55am BST

With five minutes to go, the pound is trading at an 11-month high of $1.3243, and the FTSE 100 is up 15 points.

11.46am BST

Financial traders should brace for a volatile few hours, once the Bank of England's announcement hits the wires at noon.

Craig Erlam, senior market analyst at OANDA, says sterling could rise, or fall, sharply depending how many MPC policymakers voted for a rate hike. Mark Carney's comments to the press from 12.30pm will also be closely watched.

Markets have all-but priced out a rate hike today but recent moves in sterling and UK yields suggest traders are not convinced that the BoE will hold off too much longer.

Given the uncertainties surrounding both the UK economic outlook - as a result of Brexit - and the BoE's position, markets could become quite volatile, particularly when the voting is released and during the press conference with Governor Mark Carney and some of his colleagues.

11.30am BST

Excitement is building, with just 30 minutes until the Bank of England announces its interest rate decision.

Less than an hour to go now until the @bankofengland decision pic.twitter.com/JZitYeyEQF

Ps: the @BBCBusiness unit positively buzzing with excitement on this most super of #SuperThursday Pens & @Twitter primed for midday "

11.28am BST

Dutch bank ING have surpassed themselves with this note, outlining the various scenarios that could play out today:

$GBP: More narratives than Game of Thrones in Bank of England this week. pic.twitter.com/bET1NwAwSP

11.18am BST

Over on Bloomberg, Mark Gilbert and Marcus Ashworth have done a good piece arguing that the Bank would be wrong to spring a surprise rate hike on the City today.

They point out that the UK is growing slower than the eurozone, while inflation is eating into wages.

While Carney and the MPC will likely take the risk of letting the economy run too hot during this delicate Brexit transition period, the bank's capacity to surprise shouldn't be underestimated.

That January 2007 shocker -- a 5-4 decision -- came after an August 2006 increase that caught 38 out of 46 economists surveyed by Bloomberg by surprise. Then, as now, inflation was outpacing the bank's 2 percent target, averaging 2.6 percent between the two meetings. Wages, however, were booming by 4.3 percent or better -- and there was no Brexit clouding the horizon.

Five charts on why the Bank of England's on holiday https://t.co/sobRauTFFL via @gadfly pic.twitter.com/H2eSVbJ6Su

11.04am BST

The Bank of England certainly faces something of a dilemma.

Its mandate is to keep inflation at 2% in the medium term. So, with the Consumer Prices Index rattling along at 2.6%, there's an argument for raising borrowing costs to subdue demand.

10.19am BST

Can the Bank of England really hike interest rates and cut its growth forecasts on the same day?

Fran Boait, executive director of campaign group Positive Money, argues not. Instead, she wants the BoE to consider pumping more money into the economy to drive growth.

"There's been much talk in recent months of tightening monetary policy. But if the Bank downgrades its growth forecast today and warns of risks from Brexit, we'll have to think seriously about its options if things continue to deteriorate.

The governor has justifiably ruled out negative rates, and expanding QE may be politically impossible. The Bank needs a way of injecting demand directly into the real economy, like monetary financing. What would that look like? It's a discussion we should start having now."

The BoE seems set to keep policy on hold given recent slower wage growth and modest economic growth. While inflation remains well above the Bank's 2% target rate, it unexpectedly slowed in June.

With likely only two members to vote to raise rates after MPC Member Kristin Forbes' departure, the risk may be to the downside for the pound unless the Bank is more hawkish than expected."

9.49am BST

Can we help you understand today's Bank of England meeting?

Let us know what question you'd like answered, and we'll do the rest....

9.47am BST

Boom! Sterling has hit a new 11-month high against the US dollar, following the news that Britain's service sector sped up last month.

The pound hit $1.3267 for the first time since September 2016, also helped by the possibility of a shock interest rate rise today.

"Firms' prospects for the coming year have slipped to a level which has previously been indicative of the economy stalling or even contracting, having taken a lurch downward since the general election, largely reflecting heightened uncertainty about the economic outlook and Brexit process."

PMI "prospects for the coming year have slipped
to a level which has previously been indicative of
the economy stalling or even contracting"

9.36am BST

Newsflash: Britain's services sector accelerated a little in July.

Markit's services PMI has jumped to 53.8 last month, from 53.4 in June. UK companies reported that new business remained solid, and hiring picked up.

The latest reading signalled a slower rate of business activity growth than the post-crisis trend. Survey respondents noted that heightened economic uncertainty and fragile confidence among clients were key factors acting as a brake on growth.

9.30am BST

Sukhdeep Dhillon of BHP Paribas reckons the recent drop in inflation (from 2.9% to 2.6%) will encourage the Bank of England to leave interest rates on hold today.

.@bankofengland likely to downgrade 2017 growth forecast and keep int rates at record-low 0.25% #SuperThursday #BoE #UKeconomy .... 1/2

Hawkish shift @bankofengland in June briefly sparked speculation of hike, but fall in inflation and weak wage growth suggest no change 2/2

9.27am BST

Everyone loves a swingometer, right?

So Reuters have come up trumps, with this handy guide to the hawks and doves on the Bank of England's monetary policy committee:

9.18am BST

Newsflash: Growth in the eurozone's private sector has slowed, after a strong start to 2017.

Markit's 'composite PMI', which measures activity at factories and service sector across Europe, has fallen to a six-month low of 55.7 in July, down from 56.3 in June.

"Of the four largest euro members, only Italy recorded faster growth in July, pushing the PMI into territory consistent with 0.5% quarterly GDP growth. Spain nevertheless continued to record the strongest overall expansion, with the PMI indicative of 0.9% growth.

"The slowdown in Germany meant it registered the weakest increase in activity of the four largest euro countries for the first time in over 12 years, though the ten-month low PMI reading still points to a 0.4- 0.5% GDP growth rate.

9.04am BST

The big question on the lips of investors today is 'What will Andy Haldane do?"

At the last meeting Ian McCafferty, Michael Saunders and Kristin Forbes all voted to hike rates. With Forbes having left the bank since the last meeting the question is will her replacement, Silvana Tenreyo, follow in her footsteps?

Her time at the Mauritius central bank suggests that she has dovish leanings, she has also voiced concern about the economic impact of the Brexit vote, thus we doubt that she will follow in her predecessor's footsteps. Instead, Andy Haldane, the chief economist at the BOE, is the one to watch. He has traditionally been dovish, but he teased the hawks by talking about the prospect of an early rate rise last month.

Probably of most interest about today's #MPC decision will be how many dissenting votes are cast. June's meeting saw the most since May 2011 pic.twitter.com/r0bNgJw0QX

8.55am BST

Economics reporters will soon be locked in the Bank of England for the morning, giving them time to read the Inflation Report and the minutes of this week's MPC meeting.

We'll have Katie Allen and Larry Elliott there. The Times's Tom Knowles is also joining the throng....

Happy Super Thursday! Journalists will soon be going down to the BoE's 'sub-vault' to hear what's been decided on rates, @fletcherr explains pic.twitter.com/Jc9MTc9Ho1

8.38am BST

The pound is hovering around an 11-month high as the City braces for the Bank of England's rate decision at noon.

Sterling held above 1.32 against the dollar early Thursday as traders eagerly await the Bank of England's policy meeting today. Bond yields declined from July highs but remained elevated, as some market participants believe that the BoE may surprise, with a 25-basis point rate hike.

Kristin Forbes' departure from the BoE will likely lead to a 6-2 vote in favor of keeping interest rates unchanged today, with Ian McCafferty and Michael Saunders to remain the two dissenters.

Silvana Tenreyro, who replaced Forbes is most likely to join the doves for now. The most interesting member to watch is Haldane. If he decides to join the hawks and vote for a rate hike, this would lead to further appreciation in both bond yields and the pound.

8.32am BST

The Bank of England isn't short of advice from former policymakers on how to handle the levers of monetary policy.

However, they don't always agree (mirroring the argument at the Bank itself).

"I think there is a very strong case for reversing the quarter percentage point cut from last year. The rationale behind that was there was a risk that the shock of the vote would drive [demand] down excessively in the short term and the Bank tried to prevent that."

Hike interest rates, says former Bank of England deputy https://t.co/KFW18V1ATB via @telebusiness

"It is pretty clear the economy is slowing... it's a credit-fuelled expansion and so it's likely to come to an end soon....

I think they are not going to vote for a rate hike at this time and probably not until at least November and maybe not even until 2018."

'No rate rise' predicts former MPC member - Adam Posen tells the BBC he does not expect the Bank of England to ... https://t.co/kOpDcLXETt

8.00am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The Bank of England is firmly in the spotlight today as Britain's central bank prepares to set interest rates, and publish its latest inflation report.

Big day - services PMI and Bank of England.