Bank of England decides not to slash interest rates but hints it might happen this summer
Theresa May has had a calming effect on markets after her coronation to succeed David Cameron
THE Bank of England has decided to leave interest rates on hold, but have signalled a cut may be on the cards next month.
Governor Mark Carney has said that, in his personal view, a rate cut was likely over the summer and has hinted at quantitative easing to shore up the economy.
The decision to hold rates comes despite intense speculation that the Bank would move to slash rates this month, with financial markets having priced in a cut to 0.25%.
Sterling jumped one cent against the dollar, rising from 1.32 to 1.33 dollars, almost 1%, after the no change vote.
The FTSE 100 Index tailed off slightly following the MPC announcement, edging down 5.9 points to 6664.3.
Economist Paul Diggle, of Aberdeen Asset Management, said: "The Bank of England has decided that patience is a virtue.
"There's going to be a bit of disappointment in financial markets. They had taken Carney's earlier comments about easier monetary policy to heart and forgot his reputation for changing his mind.
"But the next meeting is only three weeks away, and by then Carney and his colleagues will have a few extra post-referendum data points to digest as well as a new set of forecasts. The market should get its way then, with an interest rate cut likely and renewed quantitative easing possible."
The Bank said it had taken some "reassurance" from signs that financial markets were weathering the Brexit vote.
While the pound had plunged in value, hitting 31-year lows against the US dollar last week, equities had already surged past levels seen before the referendum.
Banks and wholesale money markets were also holding up well, added the Bank.
The Bank of England's decision comes after the pound shot up this morning following Theresa May's coronation as Prime Minister.
Sterling rushed towards $1.33 as her new Chancellor Philip Hammond said there would not be an emergency budget.
It is up three-quarters of a cent already, as investors seem to be reassured by Britain having swiftly appointed a new leader, and her move to build a new Cabinet.
The pound rallied strongly for the fourth day running, and Britain’s top share index settled near an 11-month high yesterday.
The blue-chip FTSE 100 index closed at 6,680.69 points, and is up about 5% since the historic vote for Brexit on June 24.
The value of sterling plunged following the EU referendum, but the appointment of Mrs May - seen as a ‘safe pair of hands’ - has helped soothe nervous investors’ nerves.
Interest rates have been at 0.5% since 2009, at the height of the financial crisis.
And while the vote to quit the EU has had a chilling effect on the British economy, admitted Mr Hammond – he said there will be no emergency budget.
The new Chancellor did not rule out the possibility of an economic slowdown, but said the new Government will do "whatever is necessary to keep the economy on track".
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He told BBC Radio 4's Today programme: "We will face some challenges in the short term in managing the economy. It has had a shock as a result of the decision on June 23 to leave the European Union.
"That has shaken confidence, it has caused many businesses to pause investment decisions that they were making.
"The challenge for us now is to send signals of reassurance about the future as quickly and as powerfully as we can to the international investment community, to British business and to British consumers so we can get those decisions starting to be made and investments starting to flow into the UK."
Mr Hammond said that investment, job creation and business confidence had all been hit since the referendum result.
"There has been a chilling effect,” he said.
“We have seen an effect in markets, we have seen business investment decisions being paused because businesses now want to take stock, want to understand how we will take forward our renegotiation with the EU, what our aspirations are for the future trading relationship between Britain and the European Union."