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Bank of England keeps rates on hold

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The Bank of England has left interest rates at 0.25 per cent at its September meeting, following its cut to rates in August.

However, the central bank has reiterated that it expects to cut rates further before the end of the year.

Its QE package also remains the same after it expanded it to £60bn in August’s stimulus.

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

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

Governor Mark Carney has had to defend August’s monetary stimulus package as indicators suggest the UK economy has held up better than expected in the months following the Brexit vote.

However, the MPC notes today stated that its view of the “contours of the economic outlook following the EU referendum” had not changed.

It stated a majority of members expect to support a further cut before the year’s end to the rate’s effective lower bound. “The MPC currently judges this bound to be close to, but a little above, zero,” it stated.

This month services sector PMIs reached 52.9 following an 89-month low of 47.4 in July, as businesses reeled from the UK’s vote to leave the European Union.

Responding to questioning from pro-Brexit Conservative MP Jacob Rees-Moag, Carney told a Treasury select committee this month that he was “serene” in the decisions by the MPC and FPC following the June vote.

“In terms of how the economy has responded, what’s happened directionally on business investment and commercial real estate and the bigger decisions and that relative to the resilience of the consumer sector, I feel comfortable that the judgement that the referendum represented a risk to monetary policy.”

The minutes of the FPC meeting said the Bank had noticed many lenders cutting their tracker and SVR rates, but that on average these were lower than the Bank rate cut.

The minutes add: “Overall, while the evidence on the initial impact of the policy package is encouraging, the committee will monitor closely changes in asset prices and in interest rates facing households and firms and their effect on economic activity.”

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