The Bank of England kept its main interest rate unchanged at a record low of 0.25 percent on Thursday after a run of better-than-anticipated news in the wake of the country’s decision in June to leave the European Union.
The unanimous decision was widely anticipated after last month’s series of post-Brexit measures by the bank’s policymaking body that included a quarter-point interest rate cut and an expansion of its stimulus program. The nine-member panel also voted unanimously to continue with its stimulus, which includes purchases of corporate bonds as well as government bonds.
Since the August round of measures from the central bank, there’s been a raft of data pointing to the British economy holding up better than anticipated by many in the wake of the Brexit vote.
Though the decision to leave the EU proved a huge surprise to many in the financial markets and prompted a dramatic slide in the value of the pound, the real economy has exhibited a relatively high degree of resilience. Retail sales, house prices and industrial production have all held up — to the surprise of many.
In a statement accompanying the decision to keep policy unchanged, the Monetary Policy Committee conceded that news on the near-term momentum of the economy had been “slightly to the upside” relative to its most recent projections made in the August Inflation Report. It noted a “less negative” near-term outlook for the housing market and better than anticipated consumption data.
“The Committee now expects less of a slowing in U.K. GDP growth in the second half of 2016,” it said. Last month, it had forecast that growth would be negligible in the second half of the year as businesses and consumers responded to the uncertainty generated by the Brexit vote.
Still, the nine-member panel said “the contours of the economic outlook following the EU referendum had not changed.”
Overall, it said the economic news since the June 23 Brexit vote remains “consistent” with its August judgment that “business spending would slow more sharply than consumer spending in response to the uncertainty associated with the United Kingdom’s vote to leave the European Union.”
The committee’s main remit is to contain inflation — to keep consumer price increases at around 2 percent on an annual basis. The fall in the pound since the Brexit vote from around $1.50 to around $1.30 has raised the prospect of higher inflation because import costs go up when the currency falls.
In spite of that, inflation held steady in the year to August at 0.6 percent — another surprise to many in the markets as well as to the Bank’s policymaking panel. As a result, it said it expects inflation to rise to around target in the first half of 2017, “albeit with the projection a little lower over the remainder of 2016 than had been anticipated in August.”