Minutes to the central bank's meeting showed that it believes that the boost to inflation from the pound's sharp fall in the wake of the Brexit vote in June 2016 "appeared to have peaked" and "while remaining significant, was likely to fade a little faster than previously thought". As a result, "the average two-year fixed rate has climbed to 1.50% today, up from 1.17% in May 2017, while the average five-year fixed rate market has grown by 0.27% to stand at 2.08% today".
Note from the bottom line on the chart above that the pair is still in "oversold" territory - although less so than it was earlier this month, suggesting that a rally is the more likely option.
The dovish turn of the bank is framed by lower inflation and growth forecast and shifting drivers from external to domestic factors. The recent weakness in data for the first quarter had been consistent with a temporary soft patch, with few implications for the current degree of slack or for the outlook for the United Kingdom economy, the minutes showed.
The majority of rate-setters preferred to wait to raise rates to "discern whether the softness in the first quarter might persist".
The Guardian quoted Tom Stevenson, investment director for Personal Investing at Fidelity International, as pointing out that the BoE had pulled another U-turn, having hinted in February that rates would rise today.
At the latest meeting, seven members voted to keep interest rates on hold and two, Ian McCafferty and Michael Saunders, voted for an increase.
The Bank of England is not actively discussing how to reverse the quantitative easing (QE) stimulus plan in which it bought hundreds of billions of pounds of government bonds with new money, Governor Mark Carney said on Thursday.
'Only one month ago, the markets were predicting a more than 90% probability of a United Kingdom interest rate increase this month.
Around the same time, Governor Mark Carney also had signaled in an interview to the BBC that the uncertainty around the Brexit negotiations could lead the MPC to delay raising interest rates. The central bank noted that CPI fell to a lower rate than expected in March, of 2.5% year over year, and now expects CPI inflation to fall back slightly more quickly than in forecast in February. We don't think that the MPC needs to see stellar data: "a rebound to trend growth would most likely be sufficient".
Overnight interest swaps now price in a chance of just over 10 percent that the BoE will not raise interest rates at all this year - with a rate hike delayed until early 2019 - compared with a near-certainty of a 2018 rate rise earlier.
This was much worse market forecasts that the UK's trade balance would slump to -£2bn and was the largest deficit since last June, with investors particularly anxious about the 2.2% slump in exports.
Since he joined the BoE in 2013, Mr Carney has signalled several times that the time was nearing for rates to rise from the historic low of 0.5 per cent reached during the 2008-09 financial crisis, only for economic data to surprise him.
Three months ago, the Bank had been pencilling in growth of 0.4% in the first quarter and 1.8% for 2018 as a whole.