Interest rates on hold - for now, says Bank of England

In August, the Bank cut its bank rate of 0.5 per cent in half as part of its attempts to shore up the stability of the UK’s banking system threatened by fallout from June’s vote to leave the EU.

The Bank’s Monetary Policy Committee’s decision to stick with that position today came as no surprise to analysts and was the result of a unanimous 9-0 vote by MPC members, including governor Mark Carney.

August’s decision to cut the rate was the first such move since March 2009.

But although the immediate economic after-shock of the Brexit vote may not have been as severe as feared, the Bank restated that further rate cuts may still be announced in the coming months.

Announcing today’s decision, the MPC also stressed that its view of the “contours of the economic outlook following the EU referendum” had not changed.

“A number of indicators of near-term economic activity have been somewhat stronger than expected,” the Bank said in the minutes of its latest MPC meeting.

HOwever, the committee said that if its economic forecasts in November turn out to be similar to those it had formulated in August, then “a majority of members expected 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 the year.”

The BoE’s QE package also remains the same after it expanded it to £60 billion in August’s stimulus.

In minutes accompanying today’s decision, the MPC said the stimulus package had “led to a greater than anticipated boost to UK asset prices”.

They stated: “Short and long-term market interest rates fell notably following the announcement; corporate bond spreads narrowed, and issuance was strong; and equity prices rose.”

However, while the Bank noted that some economic indicators may have suggested that the UK economy has shrugged off the post-referendum surprise in the short-term, the MPC said it still expects the pace of economic activity in the July-September period to have halved from the growth rate recorded earlier in the year.

The next MPC meeting will be held in November at which some experts have predicted a cut in the bank rate to just 0.1 per cent.

“The MPC currently judges this bound to be close to, but a little above, zero,” it said.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “It is no surprise that the Bank of England has adopted a position of ‘no change’ in September, following its more radical changes to interest rates and asset purchases announced last month, though it has indicated that it envisages the prospect of a further rate cut before the year’s end. We now await the detail of the UK Government’s approach to economic policy, to be announced by the new Chancellor, Philip Hammond, in his Autumn Statement on 23 November.

“The Chancellor has indicated that his approach will vary from that of his predecessor, George Osborne, and businesses will expect a more positive approach to both tax reductions and infrastructure investment in this year’s Autumn Statement.

“Our members have indicated that reductions in both VAT and the burden of Corporation Tax would be welcomed, together with a clear forward strategy of investment in the UK’s economic infrastructure. Indeed, the latter could be kick started with an early decision on airport expansion in the south east of England.

“The Scottish Government also has the opportunity to head off some of the threat of the expected economic headwinds in 2017 by ensuring that next year’s revaluation in Scotland’s business rates results in a net benefit to Scotland’s businesses, enabling them to invest in jobs and growth.”