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| Bank of England leaves interest rates unchanged Bank of England leaves interest rates unchanged | |
| (4 months later) | |
| The Bank of England left the door open to another interest rate cut this year but decided that the safest option for now was to wait and see if the economy can continue to weather the initial shock of the Brexit vote. | The Bank of England left the door open to another interest rate cut this year but decided that the safest option for now was to wait and see if the economy can continue to weather the initial shock of the Brexit vote. |
| Following signs that businesses and households have largely shrugged off the initial shock of the referendum, all nine members of the Bank’s monetary policy committee (MPC) voted to leave interest rates at a record low of 0.25% and to continue with an electronic money printing programme. That package of measures, which included a reduction in the main borrowing rate from 0.5%, was announced in August in an attempt to shore up the economy after the referendum. | Following signs that businesses and households have largely shrugged off the initial shock of the referendum, all nine members of the Bank’s monetary policy committee (MPC) voted to leave interest rates at a record low of 0.25% and to continue with an electronic money printing programme. That package of measures, which included a reduction in the main borrowing rate from 0.5%, was announced in August in an attempt to shore up the economy after the referendum. |
| MPC holds #BankRate at 0.25% maintains government bond purchases at £435bn and corporate bond purchases at £10bn pic.twitter.com/G0ENV2Vpid | MPC holds #BankRate at 0.25% maintains government bond purchases at £435bn and corporate bond purchases at £10bn pic.twitter.com/G0ENV2Vpid |
| Minutes from this month’s 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. | Minutes from this month’s 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. |
| “A number of indicators of near-term economic activity have been somewhat stronger than expected,” the minutes said. “The committee now expects less of a slowing in UK GDP growth in the second half of 2016.” | “A number of indicators of near-term economic activity have been somewhat stronger than expected,” the minutes said. “The committee now expects 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 at about 0.2-0.3% in the third quarter, the minutes said. That was stronger than their view at the time of the August rate cut, when they forecast growth would be close to zero. | For now, an internal judgment by Bank staff suggests GDP growth will come in at about 0.2-0.3% in the third quarter, the minutes said. That was stronger than their view at the time of the August rate cut, when they forecast growth would be close to zero. |
| The meeting record showed a majority of policymakers were still open to another rate cut, probably to 0.1%, before the end of the year. 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 the latest indicators. | The meeting record showed a majority of policymakers were still open to another rate cut, probably to 0.1%, before the end of the year. 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 the latest indicators. |
| “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 in August that another interest rate cut could come this year. | City commentators highlighted that statement, which reiterated the Bank’s guidance 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.” | 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.” |
| But Elizabeth Martins, economist at HSBC, was more cautious about predicting a cut. “Of course, the data may well worsen from here. But as things stand, the conditions laid out for a rate cut this year - for the outlook to remain in line with that published in the August inflation report - are not in place,” she said. | But Elizabeth Martins, economist at HSBC, was more cautious about predicting a cut. “Of course, the data may well worsen from here. But as things stand, the conditions laid out for a rate cut this year - for the outlook to remain in line with that published in the August inflation report - are not in place,” she said. |
| Ahead of June’s referendum, Bank governor Mark Carney and other economists drew criticism from Brexit campaigners by warning that a vote to leave the EU could tip the UK into recession. With early indicators since then suggesting the economy has continued to grow, Carney has defended his pre-referendum comments and August’s decision to cut interest rates and pump money into the economy through quantitative easing, where the bank buys bonds off financial institutions. | Ahead of June’s referendum, Bank governor Mark Carney and other economists drew criticism from Brexit campaigners by warning that a vote to leave the EU could tip the UK into recession. With early indicators since then suggesting the economy has continued to grow, Carney has defended his pre-referendum comments and August’s decision to cut interest rates and pump money into the economy through quantitative easing, where the bank buys bonds off financial institutions. |
| One former member of the monetary policy committee, Danny Blanchflower, said on Thursday that the Bank was right to launch a package of supportive measures in August. | One former member of the monetary policy committee, Danny Blanchflower, said on Thursday that the Bank was right to launch a package of supportive measures in August. |
| “Absolutely clear MPC was right to act and consumer and business expectations picked up because they did so,” Blanchflower tweeted. | “Absolutely clear MPC was right to act and consumer and business expectations picked up because they did so,” Blanchflower tweeted. |
| The decision to leave policy unchanged at this meeting comes after several economic indicators suggested activity has rebounded from the initial post-EU referendum fall . | The decision to leave policy unchanged at this meeting comes after several economic indicators suggested activity has rebounded from the initial post-EU referendum fall . |
| 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. | 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 difficult to use recent data to gauge the prospects for 2017 and that there had not been any new clues as to the longer-term prospects for the UK economy. | Echoing that longer-term caution, the Bank’s policymakers said it was difficult to use recent data to gauge the prospects for 2017 and that there had not been any new clues as to the longer-term prospects for the UK economy. |
| Economists had not expected a move at this meeting but said the Bank would be closely watching how the referendum outcome affected sentiment and activity in the months ahead. | Economists had not expected a move at this meeting but said the Bank would be closely watching how the referendum outcome affected sentiment and activity in the months ahead. |
| James Knightly, economist at ING bank, 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.” | James Knightly, economist at ING bank, 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.” |