- MPC votes unanimously to keep policy unchanged this month
- Notes stronger near-term data, won’t infer on longer term
Bank of England policy makers indicated there’s still a chance of another rate cut this year as they assess the potential longer-term fallout from Britain’s decision to leave the European Union.
While the nine-member Monetary Policy Committee noted that recent near-term data had been stronger than anticipated since the Brexit vote, it couldn’t draw inferences for its longer-term forecasts. Even though initial reports had been “slightly to the upside” of projections published in August, officials said their view of the “contours of the economic outlook” hadn’t changed.
Should the outlook in November remain “broadly consistent” with last month, when the BOE announced a new stimulus package, “a majority of members expected to support a further cut in bank rate to its effective lower bound” later this year. The committee sees that lower limit at close to, but just above, zero.
“They are cautiously optimistic,” said Victoria Clarke, an economist at Investec. “Provided the data shows modest growth in the third quarter overall, they’d probably be happy to cut rates again. If it starts to pick up even more then they’ll probably take a pause and wait and see for another quarter or so.”
The BOE’s commentary was published alongside the latest policy decision on Thursday, which showed all members voted to keep the key interest rate at a record-low 0.25 percent. Officials were also unanimous on continuing with purchases of gilts and corporate bonds.
The pound was down 0.3 percent at $1.3191 as of 3:05 p.m. London time. It has dropped 11 percent against the dollar since the June 23 referendum.
With data since the U.K.’s June vote to quit the EU coming in better than expected and some economists lifting their forecasts, BOE officials led by Governor Mark Carney are taking stock after responding to Brexit with an extensive package of measures, including the first rate cut in more than seven years.
The central bank now sees economic growth of 0.3 percent this quarter. While that’s up from 0.1 percent previously predicted, it would still be just half the pace recorded in the three months through June.
The minutes of the latest meeting show some officials remain unhappy with the policy loosening. Kristin Forbes and Ian McCafferty, who voted against some of the measures in August, said the current outlook still didn’t fully warrant the new government-bond purchases. However, they didn’t vote against continuing the operation for now, given the “potential costs to the economy of immediately reversing the program.”
The BOE said evidence on the initial impact of its August stimulus is encouraging, noting narrower corporate-bond spreads, lower mortgage rates and gilt yields as well as an increase in asset prices.
“The committee would monitor closely changes in asset prices and in interest rates facing households and firms and their effect on economic activity,” it said.