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Bank of England leaves UK rates on hold after “Boris bounce”

By Amanda Cooper

The Bank of England kept UK interest rates at 0.75 per cent as growth picks up modestly

Bank of England leaves UK rates on hold after Boris bounce

The Bank of England opted to keep UK interest rates unchanged, on the grounds that there had been some improvement in the underlying economy and less global uncertainty, in a vote that was not as close as many market watchers had expected.

The BoE’s Monetary Policy Committee left its benchmark interest rate at 0.75 per cent, with seven policymakers in favour and two voting for a cut.

The most recent indicators suggest that global growth as a whole has stabilised and trade tensions have lessened, the BoE said. Furthermore, a lot of the uncertainty over Brexit that affected UK households and businesses has abated somewhat since a general election in December delivered a decisive majority to the pro-Leave Conservative party of Prime Minister Boris Johnson.

“Monetary policy will be set to ensure a sustainable return of inflation to the 2 per cent target,” the MPC said in a statement. “Policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak.”

The bank cut its growth forecasts for 2020 to just 0.8 per cent, from a previous forecast of 1.2 per cent. In 2021, UK growth is expected to reach 1.4 per cent, down from an earlier estimate of 1.8 per cent.

While UK economic growth should pick up in 2020, inflation is still expected to remain below the central bank’s 2-per cent target this year and next.

“To be clear, these are still early days, and it is less of a case of so far so good, than so far, good enough,” governor Mark Carney said at the post-meeting press conference.” It will be important for the hard data on activity to follow through on the recent pickup in the surveys, and for domestic price inflation to strengthen.”

With the BoE indicating that growth has improved, the pound rallied against the euro, rising to a session high of 84.41 pence, from around 84.60 ahead of the rate decision. Market expectations prior to the meeting had been split 50/50 in favour of a cut.

“The Committee will monitor closely the extent to which these early indications of an improved outlook are sustained and follow through to the hard data on domestic activity in coming months,” the MPC said.

This will be Carney’s last policy meeting before handing the reins over to successor Andrew Bailey, who takes over in March.

The MPC voted to maintain the bank’s 435-million pound asset-purchase programme.

FURTHER READING: Andrew Bailey appointed new governor of Bank of England

FURTHER READING: Bank of England threatens to use 'tools' to scrap Libor

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