Bank of England responds to Brexit turmoil

The Bank of England has rejected a move to cut interest rates from 0.5% to 0.25% in an attempt to stimulate the economy following the UK’s decision to leave the European Union.

The Monetary Policy Committee had been widely expected to make a change but voted 8-1 in favour of retaining the rate, which was last altered in March 2009.

Bank of England governor Mark Carney had previously indicated the MPC would do whatever was necessary in order to support the economy in the wake of the Brexit vote.

Quantative easing  was also retained at £375bn.

The Bank said the committee members made initial assessments of the impact of the vote to leave the European Union on demand, supply and the exchange rate.

“In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the committee expect monetary policy to be loosened in August,” it said.

The rise and fall of interest rates

“The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round.”

Chris Hobson, director of policy at East Midlands Chamber, said: “With reports of investments being postponed and markets remaining volatile in the wake of the EU Referendum result, it is perhaps a surprise that the MPC has acted against market expectations by deciding to not cut the UK’s base rate of interest this month.

“However, given that the decision was taken before the appointment of Phillip Hammond as the new Chancellor of the Exchequer, it is understandable that the MPC would want to postpone any potential action until its next meeting in August, when the extent to which confidence has been affected by Brexit, and what fiscal policy under the new Chancellor might look like, will be clearer.

“Investment in the UK – whether it be personal, business or Government – is key to creating confidence and we need bold, measured and responsible monetary, fiscal and economic policy to encourage this, matched by action from Government to boost job creation, exports and growth.”