The Bank of England held its monetary policy meeting last week on Thursday. As widely expected, the central bank left interest rates unchanged. Officials highlighted the greater risks on the financial markets due to Brexit.
The decision to leave interest rates unchanged comes after just a month ago, the central bank raised the borrowing costs for the second time in nearly a decade. UK’s interest rates currently stand at 0.75%.
According to the minutes from the Bank of England, policymakers voted unanimously to keep rates unchanged at 0.75%. This was in line with the economists’ expectations. Policy makers cited limited domestic developments since its last rate hike that was delivered in August.
“Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the (European Union) withdrawal process,” the central bank said in its monetary policy statement.
A report from regional staff from the Bank of England outlined that businesses were tightening costs and holding off on investment. This comes ahead of the Brexit withdrawal deadline of March 2019. The UK is expected to formally part ways with the European Union.
Export sectors that were polled saw a 40% chance that Brexit would hurt sales.
Despite the gloomy outlook, the Bank of England staff was raising its forecasts for the third quarter. According to the staff projections, the third quarter GDP growth is to advance 0.5%. This marks a slight acceleration from a 0.4% increase in the second quarter and a 0.2% increase in the first quarter.
Officials cited higher growth would come due to stronger consumer spending.
Economists continue to expect the Bank of England to hold back from raising rates until next year’s Brexit deadline. Central bank officials noted that businesses, financial markets, and the household reaction would impact further monetary policy decisions.
The central bank held the status quo steady. Economists perceive the monetary policy meeting’s language as a way not to unsettle the markets.
The central bank’s meeting came amid a host of positive economic reports over the week.
GDP and wage growth positive
The UK’s GDP increased at a pace of 0.3% on the month in July. The data beat the median estimates of a 0.2% increase. With the exception of manufacturing production, both construction and industrial output were rising.
Following the GDP data, the monthly labor market data was on the schedule. The UK’s unemployment rate was holding steady at 4.0%, marking historical lows since 1975.
Further to this, the UK’s wage growth was accelerating strongly in the three months to August period. The increase in wage growth comes after months of stagnant wage growth.
Real wages advanced for the first time in recent months. The Bank of England was expecting to see an eventual growth in wages. The forecast comes due to the shortage of skills which tends to push wage growth higher.
The latest inflation figures for August will be coming up later today.
Carney to remain governor of BoE until 2020
The BoE’s meeting also comes as the governor Mark Carney will be extending his tenure through 2020. As a result, the BoE Governor, Mark Carney will be at the helm, steering the financial markets through the Brexit deadline next year.
News reports also showed that Carney had briefed Theresa May and other senior ministers for preparing for a no-Brexit deal. The governor apparently updated the legislators that a no-deal Brexit could put pressure on UK households’ incomes for years to come.