The Bank of England will hold interest rates at 0.5 per cent, it has been announced, surprising economics and traders who expected that rates would be cut to support the economy post-Brexit.
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As well as keeping borrowing rates unchanged, the bank’s Monetary Policy Committee also chose to keep its asset-purchase program unchanged at 375 billion pounds ($500 billion).
A plunge in consumer confidence as measured by market research firm GfK and evidence of markedly reduced business sentiment offered the backdrop for action sooner rather than later.
The Bank said that some businesses were starting to delay investment projects and postpone recruitment decisions, while a “significant weakening” in activity in the housing market was expected.
The Bank of England said it expects to see “sizeable falls” in the value of commercial property in the coming months and it has also revised down its outlook for house prices.
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.
The Committee will publish its new forecast in its forthcoming Inflation Report on August 4.
The BoE said it was likely to deliver stimulus in three weeks’ time, possibly as a “package of measures”, once it has assessed how the June 23 referendum decision has affected the economy, the world’s fifth largest.
Up about 1% earlier, USA futures are now higher by 0.5%.
Financial markets have reacted sharply to the United Kingdom’s vote to leave the European Union.
So strong were his hints that looser monetary policy was on the way, that the market had come to fully expect interest rates to be cut to 0.25% today.
Policymakers discussed various easing options and combinations thereof at the meeting, the bank said.
One MPC member, Gertjan Vlieghe, dissented from the move to keep the BOE’s benchmark rate unchanged, expressing a preference preferring instead to cut it immediately and augment that effort with further stimulus in August, according to minutes of officials’ deliberations.
The Pound rose strongly upon the news, briefly hitting July highs against the United States dollars at $1.3477 and against the Yen at 142.22.
Carney has previously suggested he does not favor taking rates below zero, because of the potential impact on banks. The currency gained this week as Theresa May prepared to take over as prime minister, ending a period of political uncertainty that has lasted since the referendum.
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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.
