Bank of England holds off on interest rate cut and sends pound soaring
Sterling finally strengthened against the dollar after the decision was made public, rising to $1.34
THE Bank of England surprisingly kept its interest rate on hold yesterday amid speculation of a cut - sending the value of the pound soaring.
Its Monetery Policy Committee (MPC) voted 8-1 to keep the rate at its all-time low of 0.5 per cent - the level it has been since March 2009.
Sterling strengthened against the dollar after the decision was made public, rising to $1.34.
The FTSE 100 after soaring above 6,700 yesterday morning closed down 15.93 points or 0.24 per cent for the day.
Investors and analysts were surprised by the Bank’s action.
Although a note released along with their decision suggest a cut to 0.25 per cent next month looks likely.
It said “most members of the Committee expected monetary policy to be loosened in August”.
The Bank warned the “uncertainty flowing from the referendum result was likely to be negative for near-term activity”.
But it added it had taken some “reassurance” financial markets were weathering the Brexit vote.
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One reason it cited for not making the cut was “official data on economic activity covering the period since the referendum are not yet available”.
Gertjan Vlieghe was the sole member of the MPC, who voted against a hold, arguing for an immediate cut to 0.25 per cent.
Economist Paul Diggle, of Aberdeen Asset Management, said: “The Bank of England has decided that patience is a virtue.
“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.”
Chris Williamson, chief economist at Markit, said the Bank had opted against a knee-jerk reaction.
But he added it would need to “do a lot more to shore up confidence and keep the gears of the economy turning in the coming months”.
The Bank’s Governor Mark Carney, has previously been dubbed an “unreliable boyfriend” for sending mixed messages.
He hinted last month the interest rate could drop over the summer.