The Bank of England held interest rates steady at their record low of 0.25% on Thursday, after the first meeting of the bank’s Monetary Policy Committee (MPC) since its historic rate cut in August.
Governor Mark Carney and the other eight members of the committee decided that taking Britain’s interest rate closer to zero is not the best course of action to mitigate the economic risks posed by the UK’s decision to leave the EU.
Thursday marked the first Monetary Policy Committee meeting since the Bank launched its post-Brexit stimulus package on August 4.
Holding steady at 0.25% was expected. Of all the economists and forecasters Business Insider spoke to prior to the decision, not a single one saw any new policy moves on Thursday.
As well as leaving interest rates, the Bank also voted 9-0 in favour of leaving its quantitative easing (QE) programme unchanged at a total of £435 billion.
However, the Bank once again signalled that it is likely to cut interest rates again later in the year, with minutes from the meeting showing that if the UK economy’s performance is in line with the bank’s August projections.
“A majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of this year,” it said.
Market expectations seem to be that the bank will cut to 0.1% in November, but not much lower, especially seeing as numerous MPC members have almost entirely ruled out taking interest rates into negative territory. Carney himself effectively drew a line in the sand in August, saying: “We’re not intending to move to negative interest rates. At least, I’m not intending to move to negative interest rates.”
The MPC acknowledged that in recent weeks, economic data coming out of the UK has been substantially stronger than expected, noting: “Since the August Inflation Report, a number of indicators of near-term economic activity have been somewhat stronger than expected. The Committee now expect less of a slowing in UK GDP growth in the second half of 2016.” The BoE said that its latest predictions now suggest GDP growth of 0.3% in Q3 of 2016, compared to 0.1% when it released projections in August.
The Bank of England 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.
“The package of measures announced by the Committee at its August meeting led to a greater than anticipated boost to UK asset prices. Short and long-term market interest rates fell notably following the announcement; corporate bond spreads narrowed, and issuance was strong; and equity prices rose. Since then, some of the falls in yields have reversed, driven by somewhat stronger-than-expected UK data and a generalised rise in global yields,” a release from the BoE noted.
Sterling has taken a small leg down following the announcement. Just after 1:00 p.m. BST (8:00 a.m. ET) the pound is lower by roughly 0.2% against the dollar, having been flat on the day before the decision. Here’s how it looks:
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