Interest rates stay on hold but cut possible in August

The Bank of England has defied predictions by keeping interest rates on hold once more, but signalled action next month to boost the economy after the Brexit vote.
By The Newsroom
Published 14th Jul 2016, 16:52 BST
Updated 14th Jul 2016, 17:55 BST
The move has surprised investors and economists who expected a cutThe move has surprised investors and economists who expected a cut
The move has surprised investors and economists who expected a cut

Minutes of the decision by the Monetary Policy Committee (MPC) showed members voted 8-1 to leave rates at the all-time low of 0.5%, where they have been since March 2009.

Investors and economists were taken by surprise, having expected the Bank to cut rates to 0.25% after Governor Mark Carney said last month his view was that action would be taken over the summer.

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The pound jumped more than 1% against the US dollar and euro after the no-change decision, while the FTSE 100 Index briefly slipped into the red before regaining its poise.

But the minutes suggested a rate cut may come next month, revealing that “most members of the Committee expected monetary policy to be loosened in August”.

They will wait until the Bank’s quarterly forecasts on August 4 before taking further action and deciding on “various possible packages of measures”.

Economist Paul Diggle, of Aberdeen Asset Management, said: “The Bank of England has decided that patience is a virtue.

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“But the next meeting is only three weeks away, and by then Carney and his colleagues will have a few extra post-referendum data points to digest as well as a new set of forecasts.”

One MPC member, Gertjan Vlieghe, voted for an immediate cut to 0.25% amid signs that the EU referendum decision was already hitting parts of the economy, with growth set to come under further pressure.

The decision to hold rates suggests the Bank is far from having to take emergency action to shore up the economy, although the minutes do reveal worrying signs.

Fears of a hit to house prices were confirmed, with the Bank warning a preview of the June survey from the Royal Institution of Chartered Surveyors showed a “marked weakening” in activity and prices.

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Separate figures also showed plunging business and consumer confidence.

The Bank cautioned the “uncertainty flowing from the referendum result was likely to be negative for near-term activity”.

But the minutes of the MPC meeting showed the economy had been resilient in the run-up to the vote, with the Bank now expecting second-quarter growth to pick up to around 0.5%, from 0.4% in the previous three months.

Related topics:Interest RatesBank of EnglandBrexitInvestors