The Bank of England will hold a policy meeting today with market expectations high towards the easing of monetary policy through cutting rates by 25 basis points.
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Mark Carney, the governor of the Bank of England, has warned that leaving the European Union could have “material” consequences for United Kingdom growth and lead to a “technical recession”.
The Committee will publish its new forecast in its forthcoming Inflation Report on August 4.
Minutes of the highly-anticipated decision by the Monetary Policy Committee (MPC) showed members voted 8-1 to leave rates at 0.5%, where they have been since March 2009.
The BOE’s decision Thursday to leave its key rate at a record-low 0.5 percent surprised markets and a majority of economists.
“We expect economic data to soon start confirming that the economy has slowed to a standstill in the wake of the referendum”, said Reinhard Cluse, chief European economist at UBS AG.
Britain’s central bank had widely been tipped to cut rates for the first time in seven years in its first meeting after the pro-Brexit vote, but instead signalled its intention to sit tight for now. Carney has already indicated that some sort of stimulus will be offered during the summer months as his pre-vote warnings about the impact on the economy had begun to crystallize.
However, the quicker-than-expected appointment on Wednesday of Theresa May as Britain’s new prime minister has helped settle nerves in financial markets.
The only member of the MPC to vote for a rate cut this month was Jan Vlieghe.
Immediately after the announcement, the British pound hit its highest mark against the USA dollar since the beginning of July, reaching $1.3480, and the United Kingdom -focused FTSE 250 gained around 0.5 percent.
Emerging markets remained firmly on the front foot as they continued to benefit from the prospect of more cheap money from big central banks. China’s Shanghai Composite index fell 0.2 percent to 3,054.02.
“If the risk rally continues, we could be back up there tomorrow, but from a three-month perspective $1.35-1.36 is looking like a good place to sell the pound at the moment”. However, there are preliminary signs that the result has affected the mood among households and companies, with sharp falls in some measures of business and consumer confidence. He was a senior economist at Brevan Howard Asset Management before joining the committee last September.
But others say that the decision to hold off might only compound the confusion.
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“The lack of clear direction is more likely to add to economic uncertainty and therefore be detrimental to demand and the economy”, said Angus Armstrong, the director of macroeconomics at the National Institute of Economic and Social Research.
