BOE holds rates at 0.5%, QE unchanged despite collapse in business, consumer confidence
The Bank of England has held interest rates at 0.5%, confounding City analysts who expected a recent collapse in business and consumer confidence to convince policymakers to support the economy and cut the cost of credit.
By an 8-1 vote, the Bank’s monetary policy committee also refused to contain the economic fallout from the Brexit vote by expanding its £375bn quantitative easing scheme.
However, the Bank put households on notice that a rate cut was certain if the economic situation failed to improve over the next month. In the minutes of its July meeting, the MPC said that without a return to more normal conditions “most members of the committee expect monetary policy to be loosened in August”.
The Bank warned that it expects “sizable falls” in commercial property values in the coming months and also revised down the outlook for house prices.
The pound jumped 2 cents against the dollar to $1.334 and rose 1.5c to €1.20. The FTSE lost some early gains but remained up on the day, ahead 24pts, or 0.4% at 6697.
The lack of action by the Bank is likely to disappoint the new chancellor, Philip Hammond, who is seeking to stabilise confidence in the British economy following the vote to quit the EU.
But the committee made it clear that it wanted to wait until the economic upheaval caused by the Brexit vote has cleared before taking a decision to cut rates, with only Gertjan Vlieghe, an external member known for his dovish views, voting in favour of further easing by a quarter of a percentage point.
Rates have been on hold at an all-time low of 0.5% since 2009, when the country was in the depths of the worst financial crisis in the post war era.
Mark Carney, the Bank’s governor, had already signalled that Threadneedle Street stood ready to unlock fresh stimulus following the Brexit vote, which the Bank believes will trigger an economic slowdown.
Speaking a week after the shock Brexit vote, the governor said his personal view was “the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer”.