BoE rates on hold

  • The Bank kept rates on hold at 0.75%
  • UK Government bond purchases kept at same rate, as well as corporate bonds
  • GBP headed lower through the session but was relatively subdued on the decision

The BoE today kept rates on hold.

Their main reasoning was Brexit based, citing ‘assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a
limited extent, would be appropriate to return inflation sustainably to the 2% target.’

In the Inflation Report, the Bank said that global growth was constrained by trade tensions and that the manufacturing sector was the worst hit, while inflation in the EU and US had been subdued.

The maintenance of the 0.75% rate was largely dovish as the following extract from the Inflation Report says:

Growth is expected to remain subdued in coming quarters, as those uncertainties have intensified over the past few months and are assumed to remain elevated in the near term. CPI inflation is projected to fall temporarily below the MPC’s 2% target over the second half of 2019 as energy prices decline. Conditioned on a smooth withdrawal of the UK from the EU, Brexit-related uncertainties are assumed to subside over the forecast period. Together with a boost from looser monetary conditions, the decline in uncertainties leads to a recovery in demand growth to robust rates. As a result, excess demand and domestic inflationary pressures build. CPI inflation picks up to materially above the MPC’s 2% target by the end of the forecast period.

Sterling remained flat through the press conference but pushed lower in the hours after.

You can read the full inflation report and official statement here.