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Bank of England holds interest rates for 87th month

Bank-of-England-Building-BoE-Bus-700x450.jpgThe Bank of England has held interest rates at their record low for the 87th month, issuing another warning about the impact of Brexit.

The members of the Monetary Policy Committee voted unanimously to keep the rate at 0.5 per cent, but warned of the risk of a Brexit, which could “materially alter the outlook for output and inflation”.

BoE governor Mark Carney has already come under fire today for his views on Brexit, with Vote Leave director Bernard Jenkin accusing Carney of breaching purdah rules in the run-up to the referendum.

However, that has not stopped the Bank issuing comments on Brexit today, saying a decision for the UK to leave the EU could impact “the appropriate setting of monetary policy”.

“Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise. Through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy,” says a statement from the MPC.

“At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources.  Sterling is also likely to depreciate further, perhaps sharply. This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May inflation report.”

The MPC added that it will take “whatever action is needed” following the referendum vote, to ensure inflation returns to the target 2 per cent in the “appropriate horizon”.

Alex Brandreth, deputy CIO at Brown Shipley, says the BoE remains “resolute” in not moving on interest rates.

“Given the gravity of the impending EU referendum and the jitters we’ve already seen in markets, as well as the likely volatility we’ll see should the UK opt to take the exit door, it would have been a hugely bold move by governor Carney and the MPC to have announced anything different today,” he says.

“In deciding the fate of our interest rates the MPC will continue to have an eye on multiple dials, including events beyond our shores, such as the race for the White House. In essence, with so many moving parts and current levels of uncertainty, don’t expect a rate rise any time soon.”



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