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Bank of England to reveal interest rate cut decision – business live Bank of England leaves interest rates on hold despite Brexit fears – live updates
(35 minutes later)
12.32pm BST
12:32
Commercial property prices are going to suffer ‘sizeable’ falls following last month’s Brexit vote, says the Bank of England.
Today’s minutes state that:
Regarding the housing market, a preview of the June RICS survey had pointed to a marked weakening in expected activity and prices following the referendum result. Bank staff had lowered their forecast of housing investment significantly and had revised down the near-term outlook for house prices.
The forecast for housing investment had a direct read-across to GDP, while the outlook for house prices was expected to act as a drag on household consumption. Staff were also expecting sizeable falls in commercial real estate prices in the near term.
12.27pm BST
12:27
Bank of England leaves rates on hold: instant reaction
Lionel Barber, editor of the FT, reckons the Bank of England didn’t want to cause alarm by slashing rates today.
Bank of England leaves interest rate unchanged: Carney trying to reinforce sense of stability with new government - and keep powder dry
Sky News’s Dharshini David believes the BoE needs more evidence about the UK economy following the Brexit vote.
only 1 person voted for rate cut not surprising - cut/more QE may have looked like panic given lack of hard evidence on economy post June 24
Economist Marc Ostwald reckons the Bank made the right decision.
#BOE right decision; August still on, but again total guidance failure (viz comments 2 wks ago 'package of measures', #unreliableboyfriend
12.24pm BST
12:24
Why the Bank left rates on hold
You can see the minutes of the meeting online, here.
The key section comes at the end, where the Bank explains that its policymakers decided to resist easing monetary policy until they have done more analysis of the situation.
Here’s a flavour (I’ve bolded up the key points).
The MPC was committed to taking whatever action was needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expected monetary policy to be loosened in August.
The Committee reviewed a range of possible stimulus measures and combinations thereof. It considered the potential interaction between various measures and the financial system, and therefore their influence on output and inflation. Committee members had an initial exchange of views on various possible packages of measures.
The exact extent of any additional stimulus measures would be based on the Committee’s updated forecast. Their composition would take account of any interactions with the financial system and their effectiveness in supporting the domestic economy. Further detailed analysis across all policy areas of the Bank would be required.
Against that backdrop, most members judged it appropriate to leave the stance of monetary policy unchanged at this meeting.
For one member, the subdued economic outlook before the referendum had already come close to warranting further stimulus. The early evidence supported the view that demand was likely to weaken further following the referendum. The resulting outlook for medium-term inflation – even taking into account the boost from the lower level of sterling – therefore justified an immediate loosening of monetary policy, to be supplemented by a package of additional measures in August.
So, Mark Carney then proposed leaving interest rates on hold -- most of the committee backed him.
However the newest member, Gertjan Vlieghe (a former hedge fund economist) pushed for an immediate rate cut.
12.13pm BST
12:13
Bank: Brexit vote is now hurting the economy
The Bank of England’s agents, who work across the UK, are seeing signs that the economy is weakening.
It says:
Official data on economic activity covering the period since the referendum are not yet available. However, there are preliminary signs that the result has affected sentiment among households and companies, with sharp falls in some measures of business and consumer confidence.
And the BoE singles out the housing market as a significant concern:
Early indications from surveys and from contacts of the Bank’s Agents suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions. Regarding the housing market, survey data point to a significant weakening in expected activity. Taken together, these indicators suggest economic activity is likely to weaken in the near term.
12.10pm BST
12:10
As well as leaving rates on hold, the Bank of England voted 9-0 to leave its quantitative easing programme unchanged at £375bn.
Monetary policy summary and minutes of the MPC meeting ending on 13 July 2016 https://t.co/KxIXEgjl8c #BankRate pic.twitter.com/XZlgUZIV0c
12.10pm BST
12:10
Good news for holidaymakers heading to Europe this summer.... the pound has jumped by 1.5 cents against the euro to €1.20.
12.07pm BST
12:07
Bank of England: We'll probably stimulate in August
The Bank of England has also delivered a clear signal that it will ease monetary policy in August.
The minutes of today’s meeting state that:
“In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August,
“The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round.”
That will give the Bank’s economists more time to actually see the impact of the Brexit vote on the UK economy.
12.04pm BST
12:04
One Bank of England policymaker, Gertjan Vlieghe, voted to cut interest rates to 0.25%.
But the other eight members of the MPC voted to leave borrowing costs on hold until August.
12.02pm BST
12:02
Sterling surges after Bank leaves interest rates on hold
The pound is surging!!
It’s up by two cents against the US dollar, to $1.336, following the surprise decision to leave interest rates at 0.5%.
£: Fly-hitting-a-windscreen formation. pic.twitter.com/Yq239LmoM7
Updated
at 12.03pm BST
12.00pm BST
12:00
BANK OF ENGLAND INTEREST RATE DECISION
Breaking news! The Bank of England has left interest rates unchanged, dashing expectations of a rate cut.
More to follow!
11.55am BST11.55am BST
11:5511:55
FIVE MINUTES TO GO......FIVE MINUTES TO GO......
Currently the pound is trading at $1.323 against the US dollar, up almost a cent today.Currently the pound is trading at $1.323 against the US dollar, up almost a cent today.
And the FTSE 100 is up 62 points, or almost 1%, at 6732.And the FTSE 100 is up 62 points, or almost 1%, at 6732.
11.49am BST
11:49
The Bank of England faced a very tricky decision this month... weighing up the risks to economic growth against the prospect of higher inflation.
Mark Carney and colleagues will also be aware that they can’t cut interest rates much lower -- although negative borrowing costs are an option. So a quarter-point cut to 0.25% would give leeway for further cuts in the future.
Fawad Razaqzada, market analyst at Forex.com, explains how political developments will also have influenced the BoE:
The Bank of England is widely expected to do something today, possibly deliver a 25 basis point rate cut. But it could also restart its bond buying programme and introduce other measures to support lending to households and businesses.
However, the swift appointment of a new Prime Minister in the UK means the political situation here is now a lot less uncertain, while the pound’s sharp depreciation in the aftermath of the Brexit vote means import costs are rising which may be passed onto the consumer. So, inflation could be on the rise.
Therefore, the BoE may actually hold off cutting interest rates at this meeting or at the very most deliver a small cut – certainly no more than 25 basis points, in my view. A small rate cut will still keep intact the bank’s credibility because it will have done something as promised, while at the same time it will unlikely overcook inflation.
11.42am BST
11:42
Tension is rising in the City as the clock hands tick towards noon....
30 minutes to go until #BOE pic.twitter.com/OhG2GndIQF
11.29am BST
11:29
Just thirty minutes to go, until the most eagerly awaited Bank of England interest rate decision since the height of the financial crisis.
Most City traders appear to be expecting an interest rate cut. But most City traders expected Britain to vote to stay in the EU three weeks ago.....
As Augustin Eden at Accendo Markets puts it:
“Equity markets are in the green this morning, perhaps worryingly so given the potential for a negative surprise from the Bank of England at midday.
Traders are currently pricing in an 80% chance of a rate cut, but just take a step back and recall the last time markets priced in an 80% chance of something happening.
11.20am BST
11:20
US Treasury secretary to meet Hammond today
It’s no secret that the US government is very concerned about the Brexit vote.
And that’s why Treasury secretary Jack Lew is racing to London from Berlin today, where he’s been meeting Germany’s finance minister.
Before jumping on his flight to meet chancellor Philip Hammond, Lew told reporters in Berlin that both sides need to be pragmatic and flexible.
Reuters has the key quotes from Lew:
“I will be meeting with the new chancellor this afternoon, I look forward to it.
“We believe that it is in the best interests of Europe, of the United States and the global economy to end up with a result that produces a highly integrated relationship between the UK and the EU.
“We think it is critical that negotiations take place in a pragmatic, transparent and smooth manner and for both sides to demonstrate flexibility.
Lew has originally been expecting to meet George Osborne, before Theresa May wielded the knife with such vigour.
To repeat, this is a HUGE reshuffle - total remaking of government. Massive political, cultural and social shift by @theresa_may
10.51am BST
10:51
The decision on interest rates will dominate the headlines, but the real story may be in the minutes of the Monetary Policy Committee meeting.
The Bank could use the minutes to signal its concerns about Brexit, but won’t want to spark panic in the City either, so the wording will be crucial.....
.@bankofengland BoE statement today more important than any action: too much uncertainty-markets will panic, not dovish enough-easing undone
10.40am BST
10:40
Guardian: UK needs fiscal boost as well as rate cuts.
Cutting interest rates to fresh record lows would be a start, but it’s not enough to rescue the economy from the swamp of a Brexit-induced recession.
Britain also needs a big dose of government spending to help the real economy, in a reversal of George Osborne’s austerity agenda.
That’s the Guardian’s view. Here’s a flavour:
The Bank should drop rates, starting this Thursday. But while historic, even a cut would not achieve what might be expected in normal times. Interest rates are already very near what’s called the zero lower bound – the point at which cuts will not stimulate further growth.
As for the Bank going in for more quantitative easing, £375bn has already been pumped into the financial system, benefiting the rich and pumping up London house prices. The real boost to growth will only come with a big burst of public spending on infrastructure, services and benefits – the areas that have suffered most under austerity. Theresa May has already talked about infrastructure bonds, but she will need to go a lot further than that.
That may be ideologically uncomfortable for the Tories, now seeking ways to mitigate economic and social damage from the referendum they called. But they should consider the words of Mr Carney: “One uncomfortable truth is that there are limits to what the Bank of England can do.”
Related: The Guardian view on the Brexit recession: cut rates and scrap austerity to save the economy | Editorial
10.05am BST
10:05
European stock markets have hit their highest levels since the EU referendum on 23 June.
But that’s not a sign of economic confidence. Instead, traders are expecting even more monetary easing from the world’s central bankers.
Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels, explains:
“European shares have made up most of the lost ground after the Brexit shock. The main, if not only, reason for this is that they anticipate a strong policy response from central banks.
“A rate cut by the BoE is almost a certainty.”
9.42am BST
09:42
Here’s a great chart from the Resolution Foundation, showing how the markets have consistently expected interest rates to rise....and been consistently disappointed.
Less mañana more hasta la vista - the latest outlook for interest rates ahead of today's MPC decision pic.twitter.com/H495WJGJyE
9.34am BST
09:34
The last decade have been a ‘game of two halves’ at the Bank of England.
Once the credit crunch struck in 2007, it slashed borrowing costs to record lows and pumped hundreds of billions into the economy through QE.
But in recent years, the BoE has been sitting on its hands, while telling the UK that borrowing costs were likely to soon start rising. They never did, though, and now a cut seems rather more likely.
Here’s a timeline of the key events:
Related: UK interest rates timeline: the ups and lots of downs
9.19am BST
09:19
The Brexit referendum has already sent a chill through Britain’s housing market.
The Royal Institution of Chartered Surveyors’ latest survey shows that enquiries from potential buyers fell sharply last month.
Surveyors are also much gloomier. Expectations of future sales fell at the fastest rate since the survey began in 1998, and the balance of surveyors expecting house prices to fall in the next three months hit a five-year high.
Reversal of fortune. RICS survey points to risk of UK house price declines. Things were looking rosy not long ago. pic.twitter.com/W7Km6JmGcX