Bank of England holds interest rate at 0.75 per cent
The Bank of England has decided to hold interest rates at 0.75 per cent in its last meeting of 2019 as it warned there was little chance of significant economic growth this quarter.
The Bank’s Monetary Policy Committee (MPC) voted 7-2 in favour of maintaining the rate, as it did at its previous meeting in November.
Read more: Why the Bank of England should hold interest rates
Sterling lost roughly half a per cent against the dollar after the announcement.
UK GDP increased by 0.3 per cent in the third quarter and is expected to rise only marginally in the year’s final quarter.
The monetary policymakers did point out that both sterling and the FTSE had rallied in the last month, with the pound’s exchange rate appreciating by around two per cent.
Minutes from the three-day meeting showed that Jonathan Haskel and Michael Saunders had voted to cut rates by 0.25 per cent.
The two argued: “The economy had been a little softer than expected, and there was a modest but rising amount of spare capacity.
“Core inflation was subdued. Employment growth was slowing and seemed likely to weaken further given trends in vacancies and firms’ hiring intentions.”
However, the MPC said it was yet unclear whether Boris Johnson’s victory would lift the uncertainty hanging over the UK economy.
The MPC said: “If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation.”
It added: “Further ahead, provided these risks do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target.”
Analysts said that the Bank’s wait-and-see approach was “perfectly appropriate for some time yet”, due to the reduction in political risks from the result of the General Election.
Dr Kerstin Braun, president of Stenn Group, said: “Boris Johnson’s win provides the much-needed solidity the UK has been craving.
“Businesses can begin to see their future and now Brexit is confirmed to go ahead, The Bank of England needs to keep the economy steady as we navigate Britain’s exit from the EU.
“But a prolonged period of low growth, low inflation, and low interest rates will limit the Bank’s ability to create stimulus when needed.”
There had been speculation that the MPC would commit to a rates cut. In the Bank’s November meeting, two of the nine-member committee voted for a cut.
The decision comes after inflation data showed that the Consumer Prices Index stood at 1.5 per cent in November, flat on October and half a per cent below the Bank’s target of two per cent.
Earlier this month the US Federal Reserve left interest rates on hold, bringing to an end the cutting cycle instigated in July.
The European Central Bank also held rates in Christine Lagarde’s first meeting as president, downgrading its 2020 growth forecast in the process.
Read more: Bank of England refers hedge fund eavesdropping to regulator
The announcement comes after the Bank said it had referred the hacking of its market-sensitive press conferences to the financial watchdog, after it emerged that an audio feed was supplied to high-speed traders before they were officially broadcast.
The Bank confirmed what it called a “wholly unacceptable” use of a back-up audio feed by a third-party supplier, and said it had reported the matter to the Financial Conduct Authority (FCA).