Interest rates set to be held at 0.5% after sharp slowdown in growth

The Bank of England is expected to hold fire on hiking interest rates this week

THE Bank of England is expected to hold fire on hiking interest rates this week, putting off its long-anticipated increase after economic growth almost ground to a halt.

Economists have pushed back their expectations for another rate increase to at least August - and possibly not until 2019 - after recent official figures showed the economy grew at its slowest pace in five years in the first quarter.

Gross domestic product (GDP) slowed sharply to 0.1 per cent, down from 0.4 per cent in the previous three months as the impact of the 'Beast from the East' compounded woes in consumer-facing and construction sectors.

And there are fears that the first-quarter slowdown may not just be a weather-related blip, with official data revealing more widespread weakness and survey data for April showing little sign of a bounce-back.

A lower-than-expected purchasing managers index (PMI) reading for the services sector in April followed the lowest manufacturing reading for 17 months and reports of subdued demand in construction.

With the Bank likely to cut its growth forecasts in Thursday's accompanying inflation report, most experts believe policymakers would not be able to justify increasing rates until August at the earliest.

Chris Williamson, chief business economist at IHS Markit, said: "The services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter."

"The April survey also brought signs that jobs growth has slowed and inflationary pressures have eased, suggesting that policymakers will back away from any imminent hiking of interest rates," he added.

Bank Governor Mark Carney has already weakened expectations for a May rate rise when he signalled last month that "mixed" economic data could delay the increase.

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