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Bank of England leaves interest rates unchanged Bank of England leaves interest rates unchanged
(35 minutes later)
The Bank of England has left interest rates at a record low of 0.25% after signs the economy has held up more strongly than it was expecting in the wake of the vote to leave the EU. But policymakers left the door open for another interest rate cut before the end of the year. The Bank of England has left interest rates at a record low of 0.25% after signs the economy has held up more strongly than it was expecting following the vote to leave the EU. But policymakers left the door open for another interest rate cut before the end of the year.
All nine members of the Bank’s monetary policy committee (MPC) voted to make no changes to a package of measures announced in August to shore up the economy after the Brexit vote. All nine members of the Bank’s monetary policy committee (MPC) voted to make no changes to a package of measures announced in August designed to shore up the economy after the Brexit vote.
Minutes from this week’s policy meeting showed policymakers thought there would still be a “material slowing” in economic growth in the second half of this year, but to a lesser extent than predicted at the time of August’s rate cut. MPC holds #BankRate at 0.25% maintains government bond purchases at £435bn and corporate bond purchases at £10bn pic.twitter.com/G0ENV2Vpid
A majority of policymakers were still open to another interest rate cut, probably to 0.1%, before the end of the year, the minutes suggested. Minutes from their meeting showed policymakers thought there would still be a “material slowing” in economic growth in the second half of this year, but to a lesser extent than predicted at the time of August’s rate cut.
The Bank will use its next inflation report due out on 3 November to assess the latest indicators on the economy and produce new forecasts. “A number of indicators of near-term economic activity have been somewhat stronger than expected,” the minutes said.
“The committee now expect less of a slowing in UK GDP growth in the second half of 2016.”
For now, an internal judgment by Bank staff suggests GDP growth will come in around 0.2-0.3% in the third quarter, the minutes said. That is stronger than their view at the time of the August rate cut that growth would be close to zero.
A majority of policymakers were still open to another interest rate cut, probably to 0.1%, before the end of the year, the minutes suggested. Much will depend on the Bank’s next inflation report due out on 3 November, when it produces new forecasts for the economy based on all the latest indicators.
This was the last monthly MPC meeting. The new schedule involves just eight meetings a year. The next scheduled announcement on interest rates is 3 November, alongside the inflation report. The last scheduled MPC meeting for 2016 is on 15 December.
“If, in light of that full updated assessment, the outlook at that time is judged to be broadly consistent with the August inflation report projections, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year,” the minutes said.“If, in light of that full updated assessment, the outlook at that time is judged to be broadly consistent with the August inflation report projections, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year,” the minutes said.
City commentators highlighted that statement, which reiterated the Bank’s guidance back in August that another interest rate cut could come this year.
Reacting to the minutes, Paul Hollingsworth at the consultancy Capital Economics said: “We, along with the consensus of economists and the markets, expect another cut in interest rates to 0.10% in November.”
The decision to leave policy unchanged at this meeting comes after several economic indicators suggested activity has rebounded from an initial post-EU referendum dive.
But economists warn that overall growth will still be sharply lower this quarter and next, compared with the first half of 2016, and that spending by households and firms risks slowing more markedly as Brexit negotiations begin in earnest. Earlier this week, the British Chambers of Commerce slashed its growth outlook on expectations of a slump in investment and slowdown in consumer spending.
Echoing that longer-term caution, the Bank’s policymakers said it was more difficult to use recent data to gauge the prospects for 2017 and beyond.
“Moreover, there had been no new information since the August inflation report for longer-term prospects for the UK economy,” the minutes said.
Economists had not expected a move at this meeting but say the Bank will be closely watching how the referendum outcome affects sentiment and activity in the months ahead.
James Knightly, economist at the bank ING, said: “For now, there isn’t a strong case for additional stimulus, but we are a little concerned that activity could weaken now that Brexit is much more in the news after a summer lull. Arguments and animosity about the situation along with the uncertainty that Brexit creates are likely to weigh on sentiment as the positive effects of the Olympics and a warm end to the summer start to fade.”
A factor that could sway Bank policymakers to cut interest rates even lower is the chancellor’s autumn statement due on 23 November, when Philip Hammond sets out the new tax and spending plans. The Bank of England governor, Mark Carney, has repeatedly urged ministers to help shore up the economy rather than leaving all the work to interest rate-setters at the Bank.