Brexit update: BoE keeps interest rates the same
14 July 2016 London
Image: Shutterstock
The Bank of England has declined to raise interest rates in the face of increasing economic uncertainty following the UK鈥檚 decision to leave the EU, but warned that volatility in property prices might require action in the future.
Monetary policy committee members voted eight to one in favour of keeping the UK鈥檚 interest rate at 0.5 percent, despite a majority of market commentators expecting a cut to 0.25 percent.
They also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at 拢375 billion.
A Bank of England statement said: 鈥淐ommittee members made initial assessments of the impact of the vote to leave the EU on demand, supply and the exchange rate. 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.鈥
But the outlook for the UK is less than rosy, with survey data suggesting that the housing market will suffer a 鈥渟ignificant weakening in expected activity鈥 thanks to the uncertainty brought about the 52 percent vote to leave the EU in June.
鈥淭here are preliminary signs that the result has affected sentiment among households and companies, with sharp falls in some measures of business and consumer confidence,鈥 according to the Bank of England statement.
鈥淓arly indications from surveys and from contacts of the bank鈥檚 agents suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions.鈥
鈥淭aken together, these indicators suggest economic activity is likely to weaken in the near term.鈥
Commenting, Darren Ruane, head of fixed interest at Investec Wealth & Investment, said: 鈥淚t is likely that markets will comprehensively price in the likelihood of a rate reduction in August.鈥
鈥淭he immediate reaction in markets is that UK government bond yields are higher, the FTSE 100 has fallen back by around 70 points (1 percent) to overnight levels and sterling has rallied against both the US dollar and euro.鈥
Monetary policy committee members voted eight to one in favour of keeping the UK鈥檚 interest rate at 0.5 percent, despite a majority of market commentators expecting a cut to 0.25 percent.
They also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at 拢375 billion.
A Bank of England statement said: 鈥淐ommittee members made initial assessments of the impact of the vote to leave the EU on demand, supply and the exchange rate. 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.鈥
But the outlook for the UK is less than rosy, with survey data suggesting that the housing market will suffer a 鈥渟ignificant weakening in expected activity鈥 thanks to the uncertainty brought about the 52 percent vote to leave the EU in June.
鈥淭here are preliminary signs that the result has affected sentiment among households and companies, with sharp falls in some measures of business and consumer confidence,鈥 according to the Bank of England statement.
鈥淓arly indications from surveys and from contacts of the bank鈥檚 agents suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions.鈥
鈥淭aken together, these indicators suggest economic activity is likely to weaken in the near term.鈥
Commenting, Darren Ruane, head of fixed interest at Investec Wealth & Investment, said: 鈥淚t is likely that markets will comprehensively price in the likelihood of a rate reduction in August.鈥
鈥淭he immediate reaction in markets is that UK government bond yields are higher, the FTSE 100 has fallen back by around 70 points (1 percent) to overnight levels and sterling has rallied against both the US dollar and euro.鈥
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