Bank of England freezes rate awaiting Brexit fallout
The BoE said after a regular monetary policy meeting that it expected “less of a slowing in UK GDP growth in the second half of 2016” following better-than-expected economic data in the wake of Britain’s vote to exit the European Union.
The decision raised questions among analysts over why the BoE last month cut the rate from 0.50 percent.
Its governor Mark Carney last week defended the move, saying it was partly thanks to such action that the economy had held up after the June vote to exit the EU.
Minutes from the latest monthly meeting stressed that the central bank could still decide to cut the rate further to just above zero percent before the end of the year.
“What’s interesting is that despite the better-than-expected data, most… (BoE policymakers) still think they will have to cut rates again this year,” said ETX Capital markets analyst Neil Wilson.
Analysts’ consensus forecast is for the BoE to cut the rate to 0.10 percent in November after Carney recently warned that Britain still risked falling into recession over Brexit, though the probability had lessened in recent weeks.
The Bank of England added Thursday that it had decided at its September meeting also against increasing the amount of cash stimulus pumping around the British economy.
Alongside its quarter-point rate cut in August, the BoE agreed to re-activate its quantitative easing (QE) bond-buying scheme, lifting it by £60 billion ($79 billion, 71 billion euros) to £435 billion in the first increase since 2012.
The rate cut had meanwhile been the BoE’s first change to borrowing costs since early 2009, the height of the global financial crisis.
– Fed contrast –
Traders worldwide are focusing on the central bank gatherings, hoping they will clear up some uncertainty about monetary policy in leading economies.
“A series of contradictory statements from leading Federal Reserve officials may mean the markets are unclear about what the US central bank will do at next week’s monetary policy meeting but the Bank of England’s bias toward further interest rate cuts is plain for all to see,” said Russ Mould, investment director at AJ Bell.
Official data Thursday showed retail sales in Britain fell 0.2 percent in August from July, with no real indication that the Brexit vote outcome was hurting spending.
Analysts had expected a sharper fall of 0.7 percent month-on-month, while the release came a day after a solid unemployment reading and some better-than-forecast manufacturing figures since June.
The latest official retail sales data “provides further evidence that the UK is weathering the near term effects of the Brexit vote well”, said ING bank economist James Knightley.
He added that a sharp fall in the pound triggered by the Brexit vote outcome “is likely to have boosted sales of high-end items by foreign tourists as watches and fashions become relatively cheaper for them when bought in the UK versus elsewhere”.
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