Bank of England holds interest rates amid Brexit deadlock despite sunnier economic data

The Bank of England's monetary policy committee (MPC) has voted unanimously to hold interest rates at their current level of 0.75 per cent, after weighing up “mixed” economic data, it said today.

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The central bank said it will not change its primary bank rate from where it has stood since August 2018, and cited weakening global economic conditions and “shifting expectations” about Britain’s withdrawal from the European Union.

The Bank signalled it had future rates rises pencilled in, however, should the economy continue on its current path. The monetary policy committee’s decision comes after the recent release of better-than-expected economic data, which saw retail sales grow and government borrowing decrease thanks to higher tax receipts.

In these circumstances, it said that“an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the two per cent target”.

The MPC also voted unanimously to continue with the current path of quantitative easing (QE), the bank’s bond-buying stimulus programme. It will maintain its stock of investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10bn.

It will also maintain the stock of UK government bond purchases, financed by the same means, at £435bn.

Explaining its decision, the minutes from the MPC’s meeting said: “The broad-based softening in global GDP and trade growth has continued.”

The Bank noted: “These global trends had affected UK financial conditions, which had also been influenced by Brexit developments since the MPC’s previous meeting.”

Tej Parikh, senior economist at the Institute of Directors (IoD), said: “It’s virtually impossible for the Bank to make clear decisions right now while the various unknowns surrounding the future path for the economy linger.”

“The desire to gradually normalise interest rates from their low levels is already complicated by improved wage growth on one side and weakening economic growth on the other, notwithstanding calculations over the Brexit process,” he added.

David Cheetham, of XTB Online Trading, said: “It’s not surprising the Bank has decided to remain in wait-and-see mode given the major political uncertainty at present, and don’t expect anything drastic from them until there’s greater clarity on Brexit.”

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“The market reaction has been pretty quiet with the sterling-dollar rate remaining near its lowest level of the day at $1.32,” he said.