BoE holds rates steady, signals cut to come

The bank has flagged it still expects to cut rates later this year if the British economy weakens as expected.

The Bank of England held its benchmark rate steady on Thursday but telegraphed that it still expects to cut it again later this year if the UK economy weakens as officials expect.

The BoE said in a monthly policy statement that the nine members of its Monetary Policy Committee voted unanimously in September to maintain the BoE’s benchmark rate at 0.25 per cent, after cutting it from 0.5 per cent last month.

The move was part of a package of stimulus measures to cushion the economy following Britain’s surprise vote to leave the European Union in June. Officials also revived a long-dormant bond-buying program and extended purchases to include corporate bonds.

The panel voted unanimously in September to press ahead with those asset purchases, totaling 70 billion pounds ($US92.7 billion). Two policy makers, Kristin Forbes and Ian McCafferty, in August voted against aspects of the bond-buying program but backed the initiative in September, saying that reversing it so soon carried risks.

According to the minutes, officials led by Mark Carney acknowledged this month that recent economic data suggested the economy is growing at a slightly faster clip than they predicted in the immediate aftermath of the June referendum.

“The committee now expects less of a slowing in UK gross domestic product growth in the second half of 2016,” according to the minutes. Staff now expect growth of 0.3 per cent in the third quarter compared with the previous three months, up from an August forecast for 0.1 per cent.

Nevertheless, the panel said “the contours of the economic outlook following the EU referendum had not changed.” Officials expect business investment to slow as uncertainty over the UK’s future relationship with the EU weighs on corporate decision-making. Consumer spending, they said, should be more resilient, at least for now.

The minutes record that a majority of officials expect to cut the BoE’s benchmark rate later this year if their next set of forecasts, due November, paint a picture of the economy that is broadly consistent with August’s projections.

Annual inflation in the UK, measured in August at 0.6 per cent, is expected to rise back to the BoE’s 22 per cent target in the first half of next year, the BoE said.

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