The Bank of England kept its record low interest rate and unconventional measures unchanged at its meeting on Thursday, as widely expected, in the final session for the year that set the stage for the U.K. exit from the European Union.
The Monetary Policy Committee, headed by Governor Mark Carney, unanimously decided to hold the key bank rate at 0.25 percent and the corporate bond purchase plan at GBP 10 billion.
Also, all members voted to continue the GBP 435 billion bond purchase programme. The decision was in line with economists' expectations.
A slowdown in growth remained likely, but there had been little news since the time of the November Inflation Report about domestic activity. The bank staff forecasts GDP growth of 0.4 percent in the fourth quarter of 2016.
The MPC earlier noted that the path of monetary policy following the 'Brexit' vote would depend on the evolution of the prospects for demand, supply, the exchange rate, and therefore inflation. This remained the case, the bank said.
The bank also reiterated that monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2 percent target.
Looking forward, the MPC expects inflation to rise to the 2 percent target within six months.
Further volatility in asset prices, including the sterling exchange rate, was possible over the coming months and this had the potential to affect the outlook for inflation materially in either direction, the bank noted.
The BoE cautioned that the global outlook has become more fragile, with risks in China, the euro area and some emerging markets, and an increase in policy uncertainty.
James Knightley, an ING Bank economist, noted that weakness in household spending power and the uncertainty in consumer spending due to the slowdown in job creation pose downside risks to growth next year.
This will reduce inflation pressures in the medium term so we still think that a rate cut is more likely than a rate hike, the economist added.
Howard Archer, an economist at IHS Global Insight, said the interest rates are likely to stay at 0.25 percent through 2017. However, given major uncertainties over the UK economic outlook as Brexit gets underway and develops, nothing can be ruled out.
by RTT Staff Writer
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