Hold fire: Bank of England leaves interest rates at 0.25 per cent but warns the economy may need further assistance
The Bank of England has conformed to market expectations and held its key rate of overnight interest at 0.25 per cent.
The nine-strong rate-setting Monetary Policy Committee (MPC) voted unanimously in favour of keeping rates on hold and maintaining its massive stimulus package.
The rate was cut last month from 0.5 per cent as the Bank tried to minimise the economic impact from the UK's vote to quit the European Union in June.
Read more: Shadow MPC calls on Mark Carney to wait
Alongside last month's cut the central bank launched a £70bn-per-month programme of asset purchases to support the economy against fall-out from the Brexit vote.
The Bank today said:
Overall, while the evidence on the initial impact of the policy package is encouraging, the committee will monitor closely changes in asset prices and in interest rates facing households and firms and their effect on economic activity.
Despite recent positive economic data for the period following the EU referendum the Bank's committee argues the wider economic situation has not changed.
Earlier this week figures from the Office for National Statistics (ONS) showed the unemployment rate steady at 4.9 per cent, defying concerns that the jobs market could have faltered in the first full month after the EU vote.
John Hawksworth, chief economist at PwC said the figures were “consistent with other broadly reassuring economic data for the the post-referendum period, which point to a moderation of growth rather than a recession.”
Read more: Is London the weak spot in the UK's jobs boom?
Meanwhile, the economy suffered a “short, sharp fall” in the days after the EU referendum, before confidence rushed back and things returned to “business as usual”, the BDO’s latest confidence tracker found.
Like most other economic indicators, the tracker has jumped back in August after hitting a three-year low in July. Firms told the accountants they are still hiring, activity is still climbing, and more businesses are optimistic than pessimistic about the six months which lie ahead.
The Bank of England did however reiterate its view that if necessary a further cut – expected to be to a little above zero – could be used.
The committee’s view of the contours of the economic outlook following the EU referendum had not changed. News on the near-term momentum of the UK economy had, however, been slightly to the upside relative to the August Inflation Report projections.
The committee will assess that news, along with other forthcoming indicators, during its November forecast round. If, in light of that full updated assessment, the outlook at that time is judged to be broadly consistent with the August Inflation Report 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.
The MPC currently judges this bound to be close to, but a little above, zero.
The decision is in line with Morning Wire's Shadow monetary policy committee (MPC) which earlier today advised Bank of England governor Mark Carney to keep interest rates glued at their record low.
The Shadow MPC voted eight-to-one in favour of holding rates at 0.25 per cent.
Read more: Should Mark Carney have become prime minister?
Following today's decision by the real MPC, markets were broadly flat, reflecting the certainty that the Bank of England would hold.
Nancy Curtin, chief investment officer at Close Brothers Asset Management, said:
It was always unlikely that Carney would use his firepower, especially so soon after August’s stimulus injection.
In a world with zero bound growth, central banks will become increasingly judicious in choosing when, and how to act, and currently there is no pressing need for the MPC to show their hand again.