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Bank of England holds interest rates but growth projections cut

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  • 30/01/2020
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Bank of England holds interest rates but growth projections cut
The Bank of England (BoE) held interest rates at 0.75 per cent on Thursday, despite weak economic growth at the end of last year and downgraded forecasts.

 

Policymakers voted 7-2 in favour of maintaining the base rate at its current level, in what will be Mark Carney’s last as BoE governor.

After the outcome of the election in December, political uncertainties, which can hamper the economy, have receded.

And recent indicators suggested global growth had stabilised, the Monetary Policy Committee (MPC) said in a statement to support its decision.

The committee also noted the housing market appeared to have strengthened and business activity had picked up.

However, while Britain’s economy is expected to pick up in the start of 2020 somewhat, overall forecast growth for the year was downgraded to 0.8 per cent, from a previous prediction of 1.2 per cent.

Policymakers added: “The recovery in UK growth is supported by a pickup in global activity, a further decline in Brexit uncertainties and the government’s announced spending measures.”

 

Tight call

Frances Haque, Santander UK chief economist, said: “The MPC’s decision to leave Bank Rate unchanged was a tight call this month, particularly given comments made in recent weeks by members.

“As such, all eyes were on the economic data published last week, with January flash PMIs leading to stronger growth than expected with increases across both manufacturing and services.

“This, along with positive labour market data and buoyant survey data from RICS, Deloitte and CBI will all have helped to stay the hand of the MPC, at least for now until more economic data for the beginning of the year emerges.

“We now wait to see whether the bounce in confidence from the General Election continues to feed through to growth at the start of 2020.”

 

Rates could be cut if growth doesn’t improve

Members of the committee warned rates could still be cut if growth didn’t happen.

However, in the longer term if the economy follows predictions, and inflation stays below the Bank’s target, rates could also be increased, the MPC said.

Inflation was measured at 1.3 per cent in December, well below the two per cent target.

Alex Maddox, capital markets and digital director at Kensington Mortgages, said: “It’s business as usual for now and the bank continues to keep its powder dry.

“As the year continues and we have more clarity on the Brexit transition and trade talk discussions, it will be interesting to see whether there will be any further easing if conditions do not improve.”

 

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