Bank of England keeps interest rate stable but cuts growth forecasts
The Bank revealed in its quarterly forecasts that it is expecting the economy to have flatlined at the end of last year and made a significant downgrade to the growth outlook.
The Bank of England has delivered a blow on the eve of Brexit by slashing its growth forecasts for the next three years, but held off from cutting interest rates amid signs of a recent pick-up in the economy.
Members of the Monetary Policy Committee (MPC) voted seven to two to hold rates at 0.75%, despite recent speculation that a cut was on its way.
The Bank revealed in its quarterly forecasts that it is expecting the economy to have flatlined at the end of last year and made a significant downgrade to the growth outlook – to 0.8% in 2020, 1.4% in 2021 and 1.7% in 2022.
It had previously predicted growth of 1.2%, 1.8% and 2% respectively.
But it said recent survey data pointed towards a “near-term recovery” in growth after the decisive Conservative election win and easing Brexit uncertainty.
The Bank is estimating growth will edge up to 0.2% in the first three months of 2020.
It stressed that a rate cut could still be on the cards if growth does not recover as expected.
In minutes of the MPC meeting, the Bank said: “Since the December meeting, international developments had been positive and the most recent UK data supported the forecast of a near-term recovery in growth.”
It added: “Policy might need to reinforce the expected recovery in UK GDP (gross domestic product) growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak.”
The growth forecasts will make for painful reading for the Government, coming a day ahead of Brexit on 31 January.
It also marks the decision for outgoing Bank Governor Mark Carney, who is handing over the reins to Financial Conduct Authority boss Andrew Bailey on 16 March.
The Bank’s forecasts are based on the assumption of a smooth Brexit, but cliff-edge fears have remained at the fore after Prime Minister Boris Johnson legislated against extending the transition period beyond the end of this year.
The MPC minutes show that Jonathan Haskel and Michael Saunders remained the sole dissenters on the committee, defying expectations for more policymakers to join them in calling for a cut.
Financial markets had at one stage priced in a more than 60% probability of a rate reduction after gloomy year-end economic data, though odds had been trimmed recently on strong UK jobs figures and more cheery sector survey results.
The Bank’s forecasts showed inflation – currently running at a three-year low of 1.3% – remaining below the 2% target throughout 2020.
It predicts inflation will pick up to 2% by the end of next year, but added there are risks that it could be slower to pick up.
Submitted Article
HeadlineBank of England to hold interest rates at 0.75% amind signs of stable global growth.
Short HeadlineThe pound has risen today after the Bank of England announced plans to hold interest rates at 0.75%.
StandfirstSterling is up 0.37% against the dollar at 1.306 and up 0.24% against the euro at 1.1.185.
Published Article
HeadlineBank of England keeps interest rate stable but cuts growth forecasts
Short HeadlineBoE keeps interest rates stable
StandfirstThe Bank revealed in its quarterly forecasts that it is expecting the economy to have flatlined at the end of last year and made a significant downgrade to the growth outlook.
The Bank’s Monetary Policy Committee (MPC) voted 7-2 to keep the interest rates unchanged. Traders and analysts have been split on whether the Bank would cut interest rates, making today’s decision, one of the most eagerly awaited in years.
The Bank is estimating that growth will increase up to 0.2% within the first three months of 2020. The MPC also voted unanimously to maintain the stock of UK government bond purchases at £435 billion.
In his final meeting as governor, Mark Carney said that the ‘most recent signs are that global growth has stabilised.` Cutting interest rates is being seen as unnecessary now that fewer companies are worried about Brexit.
Explaining the decision, the MPC said the uncertainties around Brexit and global trade wars had ‘receded’ in recent weeks. Two members of the MPC, Jonathan Haskell and Micheal Saunders, called for an interest rate cut of 0.5%, arguing that past surveys of economic growth were unreliable.
The members of the MPC have been split on rate change since November. High street banks currently use the Bank of England base rate as a reference for mortgages and savings accounts. Which means that lowering interest rates would mean good news for borrowers but bad news for savers.
Tej Parikh, the chief economist at the Institute of Directors, said: “There is mounting evidence that the UK economy may have experienced a bit of a post-election bounce, so on balance the bank made the right call to hold interest rates for now.”
Withholding a rate cut, Parikh said, gives the bank “greater wiggle-room” in the future if uncertainty transfers into business activity.
The Bank of England has delivered a blow on the eve of Brexit by slashing its growth forecasts for the next three years, but held off from cutting interest rates amid signs of a recent pick-up in the economy.
Members of the Monetary Policy Committee (MPC) voted seven to two to hold rates at 0.75%, despite recent speculation that a cut was on its way.
The Bank revealed in its quarterly forecasts that it is expecting the economy to have flatlined at the end of last year and made a significant downgrade to the growth outlook – to 0.8% in 2020, 1.4% in 2021 and 1.7% in 2022.
It had previously predicted growth of 1.2%, 1.8% and 2% respectively.
But it said recent survey data pointed towards a “near-term recovery” in growth after the decisive Conservative election win and easing Brexit uncertainty.
The Bank is estimating growth will edge up to 0.2% in the first three months of 2020.
It stressed that a rate cut could still be on the cards if growth does not recover as expected.
In minutes of the MPC meeting, the Bank said: “Since the December meeting, international developments had been positive and the most recent UK data supported the forecast of a near-term recovery in growth.”
It added: “Policy might need to reinforce the expected recovery in UK GDP (gross domestic product) growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak.”
The growth forecasts will make for painful reading for the Government, coming a day ahead of Brexit on 31 January.
It also marks the decision for outgoing Bank Governor Mark Carney, who is handing over the reins to Financial Conduct Authority boss Andrew Bailey on 16 March.
The Bank’s forecasts are based on the assumption of a smooth Brexit, but cliff-edge fears have remained at the fore after Prime Minister Boris Johnson legislated against extending the transition period beyond the end of this year.
The MPC minutes show that Jonathan Haskel and Michael Saunders remained the sole dissenters on the committee, defying expectations for more policymakers to join them in calling for a cut.
Financial markets had at one stage priced in a more than 60% probability of a rate reduction after gloomy year-end economic data, though odds had been trimmed recently on strong UK jobs figures and more cheery sector survey results.
The Bank’s forecasts showed inflation – currently running at a three-year low of 1.3% – remaining below the 2% target throughout 2020.
It predicts inflation will pick up to 2% by the end of next year, but added there are risks that it could be slower to pick up.
