Economists had mostly expected a halving of Bank Rate to 0.25 percent on Thursday, to be followed by a revival of the BoE’s 375 billion pound ($499 billion) bond-buying programme at its next meeting on August 4, according to a Reuters poll.
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Governor Mark Carney flagged late last month that the bank was getting ready to stimulate the economy after the Brexit vote stunned investors.
The pound jumped almost two per cent against the dollar after the Bank of England failed to cut United Kingdom interest rates, despite widely-held speculation it would move to calm fears over the impact of Brexit.
“Although the Monetary Policy Committee (MPC) surprised many by remaining on hold, we still expect an easing of policy in the near future”, Bill Street, head of Investments EMEA at State Street Global Advisors, said in a note.
“These may well include further quantitative easing as early as next month, when the Bank releases new growth and inflation forecasts in its Quarterly Inflation Report”.
The Bank of England’s Monetary Policy Committee has voted by a majority of 8-1 to maintain Bank Rate at 0.5% with August looking more likely for a rate cut.
European shares climbed to a three-week high on Thursday, boosted by auto and commodities-related stocks, with sentiment improving on expectations that the Bank of England (BoE) will cut interest rates later in the day to spur economic growth.
Savers may get an even worse deal than the sub 0.5 per cent rates offered by many accounts at the moment, though banks may hesitate before stripping any more interest from accounts, because rates are already so low.
Official data on economic activity covering the period since the referendum are not yet available. Interviewed by the BBC, Mr Hammond said that the Brexit vote had come as “a shock” to the economy.
Sterling has risen two cents against the U.S. dollar, to $1.336, following the surprise decision. At the same time low interest rates and the potential for further stimulus from a range of central banks continues to drive investors towards equities.
Sterling and rates futures had strongly anticipated a 0.25 basis point cut, with implied market pricing attributing a 75% probability to the decision in recent days. In fact, since the European Union referendum result came in, there has been a small spike in new sales instructions and an increase in buyer registrations.
It also said it expected “sizeable falls” in commercial real estate prices in the short term.
Paul Diggle, economist at Aberdeen Asset Management, commented, “The Bank of England has decided that patience is a virtue”.
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“Regarding the housing market, survey data point to a significant weakening in expected activity”.
