The Bank of England (BOE) has decided not to worry about the post-Brexit world too much. It voted to leave its interest rates unchanged.
Perhaps an unchanged rate scenario sounds hawkish after the Brexit woes dominated the news earlier this summer, but the reality is that rates are effectively right at record lows after prior easing. The BOE also left its options open for potentially lowering rates and borrowing costs later in 2016 if needed.
Mark Carney and the BOE’s Monetary Policy Committee left the key interest rate at a record low of 0.25%. They also kept the quantitative easing measures alive by maintaining government bond purchases at 60 billion pounds. This puts the level of those assets at 435 billion pounds. The BOE also is maintaining corporate bond purchases of up to 10 billion pounds per month.
Thursday’s news may feel a bit hawkish, but it was in August that the BOE announced easing measures to prevent a post-Brexit recession.
Carney previously cut GDP expectations for the United Kingdom to just about 0.3% for the third quarter, which is just half of the growth of the second quarter.
The BOE also is signaling that there will be less of a slowing in U.K. GDP growth in the second half of 2016. Another note in the statement showed that news on the near-term momentum of the U.K. economy actually had tipped slightly to the upside versus the August inflation report projections.
The BOE also indicated that it expects to support a further cut in the official bank rate to its effective lower bound if the inflation data warrants — “to be close to, but a little above, zero.”
Stay tuned. The U.S. Federal Reserve’s FOMC meeting is next week, and there has been more Fed president jawboning about the impetus for rate hikes coming sooner rather than later.