Pound rebounds as Bank of England holds off on interest rate rise

The Bank of England has delayed a predicted rise in interest rates but indicated that it could take action next month to boost the economy after the Brexit vote.

Commenting on the decision by the BofE’s Monetary Policy Committee to keep interest rates on hold at 0.5 per cent, chief executive of Scottish Chambers of Commerce, Liz Cameron, said: “Businesses are looking for clear signs of a new strategy for the UK economy in the post-referendum environment but it appears that we may have to wait at least another few weeks until the publication of the Bank of England’s latest inflation report before we discover its vision for the future.

“With the appointment of the new Chancellor of the Exchequer, we will also be looking for an early and clear indication of this Government’s economic strategy and business priorities.”

Minutes of the decision by the Monetary Policy Committee (MPC) showed members voted 8-1 to leave rates at the all-time low of 0.5 per cent , where they have been since March 2009.

Investors and economists were taken by surprise, having expected the Bank to cut rates to 0.25 per cent after Governor Mark Carney said last month his view was that action would be taken over the summer.

The news saw the pound rally to a two-week high while London’s top flight index edged down as markets reacted to the decision.

Sterling touched 1.34 US dollars before easing back to 1.33 US dollars.

The pound was also up 1.5 per cent against the euro at 1.20.

The announcement caused the FTSE 100 Index to fall back from a fresh 11-month high during the session to finish 15.9 points down at 6654.5.

Across Europe, Germany’s Dax and the Cac 40 in France were up 1.3 per cent.

The price of oil bounced back from a slump in the previous session, trading up 1.8 per cent to 47.08 US dollars a barrel despite mounting concerns over global growth.

Paul Diggle, an economist at Aberdeen Asset Management, said: “The Bank of England has decided that patience is a virtue.

“But the next meeting is only three weeks away, and by then Carney and his colleagues will have a few extra post-referendum data points to digest as well as a new set of forecasts.” David Lamb, head of dealing at Fexco Corporate Payments, said: “With rates already so low, the Bank only has one bullet in the chamber – and today it opted to delay pulling the trigger.”