The Bank of England has held interest rates at 0.25% but signalled another cut is still on the cards later this year despite a Brexit bounce in the economy.
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The Committee also voted unanimously to continue its £10 billion corporate bond purchase scheme, as well as its programme of £60 billion of United Kingdom government bond purchases to take the total stock of these purchases to £435 billion.
“Looking ahead, the committee projected that the Thai economy would continue to recover, but faces risks, particularly from the fragile global economic recovery and political developments overseas”, the central bank said.
But Bank governor Mark Carney said last week that he was “serene” and “comfortable” with the BoE’s forecasts before the European Union referendum and its decision to add monetary stimulus afterwards.
“The committee now expect less of a slowing in UK GDP growth in the second half of 2016”, the Bank said.
Policymakers have already said that another rate cut is likely by the end of the year, to a little above zero.
The Bank of England also took time to pat itself on the back for the effectiveness of the measures introduced in August, saying that they’d performed their role slightly better than expected.
But it added the economy was still set to suffer a “material slowing” in growth, with internal estimates suggesting growth will slow to between 0.2% and 0.3% in the third quarter.
“The package of measures announced by the Committee at its August meeting led to a greater than anticipated boost to United Kingdom asset prices”, the central bank said on Thursday. It is noteworthy that the BoE focuses on activity indicators and not inflation as it accepts that inflation may overshoot target to support economic activity in coming years. Another note in the statement showed that news on the near-term momentum of the United Kingdom economy actually had tipped slightly to the upside versus the August inflation report projections.
Looking at 2017, the MPC says it is harder to make a judgement, but if the present economic momentum continues, then expect a upgrade in growth forecasts for next year and 2018 after brutal downgrades last month.
Despite the BoE’s dovish stance, the GBPUSD held ground at 1.3179, while the euro-pound rebounded lower from 0.8539.
“This may scare off the sterling bulls for now”, said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate and investment-banking unit in London.
However, growth of 0.3 per cent would represent a halving from the second quarter’s pace and the Bank reiterated it could well cut its benchmark lending rate further soon.
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This June, the United Kingdom referendum ended up with a leaving decision. The committee sees that lower limit at close to, but just above, zero. News on the near-term momentum of the United Kingdom economy had, however, been slightly to the upside relative to the August Inflation Report projections.
