Bank holds fire on cutting key interest rate despite financial uncertainty.
The Bank of England has surprised analysts by voting to hold Base Rate at 0.5%.
With the widespread uncertainty created by last month’s Brexit vote, many had expected the bank to cut the rate in a bid to stimulate the economy and ease investor fears.
Of the 60 economists polled by news agency Reuters, almost two thirds predicted a rate cut to 0.25%, while others even suggested the bank might slash rates to zero.
Although the experts were proved wrong today, the bank has suggested an August cut might be on the cards.
Monetary policy summary and minutes of the MPC meeting ending on 13 July 2016 https://t.co/KxIXEgjl8c #BankRate pic.twitter.com/XZlgUZIV0c
— Bank of England (@bankofengland) July 14, 2016
Bank resists temptation to tinker – for now
The reason why economists are so convinced the bank will cut rates is the deluge of bleak predictions about our financial future.
In the three weeks since Brexit, experts have been queueing up to warn that the UK's financial woes are about to get far worse.
Investment managers Blackrock kicked things off by warning the UK would be plunged into a recession this year, while its counterparts at Credit Suisse were only slightly more optimistic, claiming the slide into red would happen in 2017.
Businesses have also been spooked, with a recent survey of bosses showing that more companies expect to cut spending rather than raise it first time since 2013.
Perhaps understandably that fear has spread to many of us: market researcher GfK said it saw the biggest fall in consumer confidence for 21 years when it polled members of the public after the referendum.
So it’s not hard to see why the bank might be under pressure to calm things down – and why many economists remain convinced it’s only a matter of weeks before it acts.
Bank hints at August stimulus
In its meeting notes, the bank's rate-setting committee revealed that eight of its nine members voted in favour of holding rates this month, with just one voting for a cut to 0.25%.
The committee also unanimously voted to leave its money-printing programme, known as quantitative easing, unchanged for the month.
However, the notes suggested that a change could well be on the cards next month – either in the form of a rate cut or more quantitative easing.
“Committee members made initial assessments of the impact of the vote to leave the European Union on demand, supply and the exchange rate,” it said.
“In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August.
“The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round."
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What it means for you
It’s more of the same for the time being. Savers will continue to struggle, while borrowers will keep benefitting from cheap credit.
If you’re a saver, have a read of our guide to the best places for your cash. It’ll highlight why you should definitely be thinking about current accounts for the foreseeable future.
As for borrowers, have a look at our mortgage and personal loan tables to ensure that, if you have to borrow, you do so as cheaply as possible.
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