The Bank of England kept interest rates unchanged on Thursday to the surprise of many economists who had expected a 25 basis point cut to address post-Brexit risks. The committee also voted unanimously to maintain the level of monthly asset purchases – or quantitative easing – at £375 billion (€448 billion).
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However, the minutes revealed that the Bank’s agents around the country had detected that “some businesses are beginning to delay investment projects and postpone recruitment decisions”.
The dollar’s losses were limited by a strong USA producer price index and better-than-expected initial jobless claims data that showed inflation and solid job growth may be returning to the American economy. “A composite gauge of economic uncertainty, which pulls together various measures of financial market, real economy and sentiment indicators has risen to its highest since 2011”.
“Most members of the committee expect monetary policy to be loosened in August”, the bank said.
Sterling rose to a two-week high of United States dollars 1.3480 on the news, while the worldwide focused benchmark FTSE 100 trimmed some of its gains.
“Whatever we are to conclude, today’s MPC minutes are certainly prepping markets for much more than just a Bank rate cut on August 4”, she said.
The bank said it was too soon to know the full impact of the Brexit vote – even though the housing market already shows signs of struggling and business confidence has plummeted.
One MPC member, Gertjan Vlieghe, voted for an immediate cut to 0.25% amid signs that the European Union referendum decision was already hitting parts of the economy, with growth set to come under further pressure.
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 per cent, from 0.4 per cent in the previous three months.
Many analysts have recommended selling any rallies in the pound in anticipation of cuts in Bank of England interest rates and a slowdown in growth in the months ahead, with a number of major banks predicting it will fall to $1.25 or lower.
Theresa May was formally installed as United Kingdom prime minister on Wednesday evening, ending the uncertainty regarding who would lead the country after David Cameron announced his resignation.
The central bank added that the majority of its nine policymakers supported looser monetary policy in its next decision due August 4. Sterling was the main beneficiary, gaining more than a cent against the dollar. The exact extent of any action will be based on updated forecasts contained in the inflation report.
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The central bank is due to publish its quarterly Inflation Report on August 4, which will include new forecasts for growth and inflation and the MPC’s first full take on how the referendum outcome is set to affect the United Kingdom.
