Fundamental Comment

BOE holds interest rates, slashes growth estimates

BOE holds interest rates and slashes growth estimates

Britain’s central bank has decided to leave Bank Rate at 0.75%, despite recent weak economic data.

The Bank of England has left UK interest rates on hold, but the decision was not unanimous as 2 members of the monetary policy committee voted to cut rates.  

BoE policymakers Michael Saunders and Jonathan Haskel continued to their pursuit to cut interest rates.

The central bank also left its bond purchases program at 435 billion pounds after a unanimous vote from all the MPC nine members.

The Bank of England has also cut its growth forecasts for the UK economy to 0.8% this year, down from 1.2% estimated previously. In 2021, Britain will grow by 1.4 percent, compared to a previous of 1.8 percent.

Growth has slowed in the UK, where investment by UK businesses has been weak, partly due to the uncertainty about Brexit.

Interest rates may need to be cut if growth doesn’t improve, but rates could rise “modestly” in future if the economy recovers and inflation picks up, the BOE added.

The recent period witnessed a stability in global growth after the decline amid trade war fears and monetary easing adopted by central banks around the world.

The bank also noted the improvement in business confidence after general election despite the imminent EU exit.

The BOE expects inflation to stay below 2% for a while, before rising back to the target.

The pound rallied for the first time in six sessions, as the BoE is less likely to cut interest rates in the coming months, as only two policymakers voted to cut rates today.

As of 12:27 GMT, the pound hit a new session’s top at $1.3095 after hitting a bottom of $1.2977 earlier in the session.

Mark Carney

BOE Governor Mark Carney has warned that the UK economy probably stagnated in the final quarter of 2019, while core inflation has also slowed. However, more timely survey data measuring activity after the election have improved “sharply.”

The discovery of a new strain of coronavirus in China is a reminder of the need to remain vigilant, he said.

The UK is entering a decade of “potentially profound structural change,” which will include new trading relationships, immigration rules. 

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