Base rate held at 0.5%

The Bank of England has unanimously voted to hold the base rate at 0.5%.

Last month the Bank’s Monetary Policy Committee voted to raise the base rate from 0.25% to 0.5%.

Frances Haque, chief economist at Santander UK, said: “The Monetary Policy Committee announcement that Bank Rate was being held at 0.50% was as expected.

Economy growing at slower pace as Brexit uncertainty grows
“Financial markets and economic commentators had not been expecting the MPC to increase rates again when it met, with the consensus view that the MPC would hold off making any further increases in 2017.

“This was partly based on the “gently rising path” approach, which Governor Carney discussed in November’s press conference.

“A clear point of interest in the coming months will be when the next hike is likely to come to meet this steady approach, with commentators holding differing views on when this might occur in 2018.

“However, it is clear that any subsequent rise will depend on how the economic news on inflation and growth develops and the government’s progress with Brexit negotiations.”

The Bank noted that Brexit is the “main challenge” for monetary policy, but it said the recent progress in negotiations has reduced the chance of a disorderly exit.

It said economic growth was “softer than expected” in this quarter, adding that future rate increases will be limited and gradual.

Research company Capital Economics isn’t expecting another rate rise anytime soon.

Paul Hollingsworth, its senior UK economist, said: “As was widely expected, December’s Monetary Policy Committee meeting was a bit of a non-event, with all nine Committee members voting to leave policy unchanged, and little alteration to the guidance contained within the minutes.

“Indeed, while the committee appears satisfied with the impact of the first hike, noting that it was in line with expectations, there was little new information on when the next hike might come – other than that further “modest” rises would be needed over the coming years if the MPC’s economic projections prove correct.

“Note that the next hike in Bank Rate is fully priced in for around the turn of 2019, little changed from November’s MPC meeting. Meanwhile, the MPC sounded a little more optimistic on Brexit, noting that recent progress in negotiations have reduced the “likelihood of a disorderly exit”.

“With the MPC having moved to eight meetings per year, the next policy meeting will be in February.

“This will be a particularly important meeting, as not only does it come alongside the next inflation report, but it is also when the MPC carries out its annual supply-side stock take.

“This will help to inform the committee on the degree of slack left in the economy and as a result, the capacity for the economy to grow without generating inflationary pressures.”


Written by: Houseladder