LONDON, The Bank of England said it was still likely to cut interest rates to just above zero later this year, even though the initial Brexit hit to Britain’s economy would be less severe than it expected only last month.
The Bank said on Thursday its nine rate-setters were unanimous in their decision to keep Bank Rate at its new record low of 0.25 percent, the lowest in the BoE’s 322-year history.
They also voted 9-0 to keep the Bank’s bond-buying program target at 435 billion pounds and to continue with its new plan to buy up to 10 billion pounds worth of corporate bonds.
Two rate-setters who last month opposed the expansion of the government bond buying program said they still did not think it was needed, but voted in line with their colleagues because reversing the decision now would be too disruptive.
Last month the BoE decided to help Britain’s economy cope with the shock of the decision to leave the European Union with a stimulus package on a scale not seen since the depths of the global financial crisis.
But since August, a string of indicators has shown a bounceback from the initial impact of the Brexit vote, surprising the BoE although the economy is on course to slow sharply.
“A number of indicators of near-term economic activity have been somewhat stronger than expected,” the Bank said in minutes of the MPC’s September meeting. “The Committee now expect less of a slowing in UK GDP growth in the second half of 2016.”
Central bank staff estimated the economy would grow by 0.3 percent in the July-September period, better than their previous forecast of a slow crawl of just 0.1 percent made in August.
However, growth of 0.3 percent would represent a halving from the second quarter’s pace and the Bank reiterated it could well cut its benchmark lending rate further soon.
“The Committee’s view of the contours of the economic outlook following the EU referendum had not changed,” the minutes said.
If the Bank’s November forecasts were “broadly consistent” with August’s, “a majority of members expected to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year,” they said, reiterating the MPC’s message in August.
The members of the Monetary Policy Committee said they continued to expect that the uncertainty caused by the vote would drag on the economy as Britain and the EU haggle over the terms of their new relationship which will probably reduce access for British companies to the bloc’s single market.
The MPC members noted that surveys since August had shown companies were probably cutting back on business investment, something which would weigh on the economy going forward, but the housing market had proven slightly more robust than expected.
Under the MPC’s new calendar, the Bank’s next rate decision is scheduled to place in November. That is when economists expect it to cut borrowing costs to around 0.1 percent.
The September meeting was the first for former Citi economist Michael Saunders who took the place of Martin Weale who opposed restarting QE in August, before he left the Bank.
British finance minister Philip Hammond has said he will back up the BoE’s monetary stimulus for the economy by slowing the country’s push to turn its budget deficit into a surplus and he is expected to announce higher public spending in November.
(Additional reporting by Helen Reid)