Uncertainty over EU vote could hit growth, Bank warns

Some experts have predicted rate cuts in coming months
Some experts have predicted rate cuts in coming months

The Bank of England warned uncertainty over the EU poll could hit growth as it marked seven years of record low interest rates by keeping borrowing costs on hold.

Members of the Bank’s Monetary Policy Committee (MPC) said the vote on EU membership may “delay some spending decisions and depress growth”, after pinpointing Brexit fears as the likely cause for the recent fall in the value of the pound.

The comments came as all nine MPC members voted to leave rates at 0.5% - where they have remained since March 2009 - and keep its quantitative easing programme on hold at £375bn.

Minutes of the meeting also showed the MPC stood by its stance that the next move for rates would be a rise rather than a cut, stating “it was more likely than not that Bank rate would need to increase over the forecast period” in order to meet its inflation target of 2%.

Experts are predicting the Bank will keep rates on hold at 0.5% until 2017.

The MPC decision to hold rates comes after the Office for Budget Responsibility (OBR) slashed growth forecasts for the economy in Chancellor George Osborne’s Budget.

It downgraded its forecast for gross domestic product (GDP) from 2.4% to 2% this year, from 2.5% to 2.2% in 2017, from 2.4% to 2.1% in 2018 and from 2.3% to 2.1% in both 2019 and 2020.

The OBR also forecast lower inflation at 0.7% this year and 1.6% next year.

It said its forecasts for the UK economy were impacted by concerns over the global economy and its decision to revise down its expectations for productivity growth, which measures the amount of output the economy can produce against the number of hours worked.

The MPC said it would analyse the announcements in the Budget during its preparation for its report in May.

Darkening skies over the global economy, the oil price rout and turbulence in the markets have led some experts to predict that the Bank might decide to cut rates over the coming months.