Despite a downgrade to its forecast for UK growth, the Bank of England says it is taking a wait-and-see approach to interest rates.
The latest meeting of its monetary policy committee (MPC) held the Bank rate at 0.75% – with its nine members remaining split on whether to cut rates amid a stagnant economy from continued global, Brexit and political uncertainty ahead of the UK election.
Nomura economist George Buckley reflects on the Bank of England’s latest interest rate announcement with Sky’s Ian King.
The vote in favour of no change came in at 7-2 with Michael Saunders and Jonathan Haskel continuing to argue for a cut to lower borrowing costs and boost activity.
:: Bank of England audio feed sold to hedge funds
The Bank said that it had cut its own forecast for UK GDP growth in the fourth quarter to 0.1% from November’s prediction of 0.2%.
While it noted limited progress in resolving the US-China trade war, that has depressed growth globally, it said the domestic factors had continued to weigh on demand.
Its statement said: “If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation.”
Mark Carney is due to step down as governor at the end of January though his successor is yet to be appointed
It added that it was too soon to gauge whether Boris Johnson’s victory had unlocked some of the pent-up demand.
The majority of the MPC, the Bank said, believed growth would rise above potential next spring, assuming a Brexit deal is passed.
There was a muted reaction to the Bank’s update from financial markets as it was largely expected.
Sterling had enjoyed a bounce on the back of the Conservative win as investors bet on a release of delayed private investment and a reduced chance of a no-deal Brexit.
Those gains were erased within days after the government declared it would write into law that the Brexit transition could not be extended beyond 2020.
The Bank released its latest policy decision and thinking hours after news broke that a back-up audio channel for its news conferences, broadcast in advance of its TV feed, had been allegedly sold by a third party supplier to hedge funds.
The admission overshadowed the conclusion of the MPC’s meeting – the penultimate rate decision Mark Carney as governor – because of the potential that money was made from high-frequency trading.
The government is yet to announce who will succeed him at the top of the bank from 1 February.