The Bank of England has decided to keep interest rates on hold despite market expectations that there would be a cut following the decision by the UK to leave the EU.
Members of the Bank’s Monetary Policy Committee voted by 8-1 to maintain interest rates at the current level of 0.5%, with Gertjan Vlieghe voting for a cut in the Bank Rate to 0.25%.
Economists were widely predicting the Rate would be cut to 0.25%, the lowest in the Bank’s 322-year history.
The minutes of the meeting suggested that next month rates could be cut and the quantitative easing programme restarted.
“In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August,” the minutes said.
The interest rate is currently at a record low of 0.5%, where it has been since 2009.
The Bank said that there were signs business and consumer confidence were plummeting as a result of the vote to leave the EU and singled out weakening activity in the housing market.
“Early indications from surveys and from contacts of the Bank’s Agents suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions. Regarding the housing market, survey data point to a significant weakening in expected activity. Taken together, these indicators suggest economic activity is likely to weaken in the near term,” the Bank said.
Mark Carney, the governor of the Bank of England, has warned that leaving the EU could have “material” consequences for UK growth and lead to a “technical recession”.
The Bank predicts that economic growth will slow down next year as a result of the referendum.
Following the result, Carney said that in the coming months the Bank would “take whatever action is needed to support growth” subject to the inflation target of 2% being met.
“It now seems plausible that uncertainty could remain elevated for some time, with a more persistent drag on activity than we had previously projected. Moreover, its effects will be reinforced by tighter financial conditions and possible negative spill-overs to growth in the UK’s major trading partners,” Carney said.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “A rate cut was widely expected, with the Bank of England under pressure to stimulate the economy as growth was stalling even before the UK voted to Brexit. It didn’t happen this time but is highly likely that a rate cut will come in August.
“Lenders are already factoring a rate cut into their pricing, with Santander increasing the premiums over base rate on some new products to protect its margins in readiness of a rate cut. Meanwhile, Scottish Widows increased the margin on its new trackers by 35 basis points.
“Lenders have also been reducing fixed rates on the back of falling swap rates. The message from lenders is that it is business as usual. They wish to improve their volumes, which are lower than they want them to be because of uncertainty around the Referendum. This is good news for first-time buyers, home movers and those remortgaging as the mortgage market is set to become even more competitive.”
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