Yahoo Finance Pound rises as Bank of England holds interest rates at 0.5%
The Bank of England has held interest rates at 0.5% after the Monetary Policy Committee voted 6-3 in favour of no rise on Thursday.
Sterling rallied above $1.32 after the UK’s central bank’s decision to maintain the status quo.
The currency rose as the chances of an August rate rise were boosted by the Bank’s chief economist Andy Haldane voting to raise the borrowing cost to 0.75%.
He joined Ian McCafferty and Michael Saunders, the two members on the nine-member rate-setting panel who favoured a rate rise. Haldane’s switch from dove to hawk on monetary policy has surprised many in the City.
Silvia Dall’Angelo, senior economist at Hermes Investment Management, said: “Importantly a significant minority – this month including the influential chief economist Andy Haldane – voted for a rate hike at this meeting.
“The Bank seems determined to deliver one more hike in the second half of the year, justified by a tight labour market and an economy now working close to potential.
However, there are several reasons to err on the side of caution.”
Manufacturing data for April showed the largest monthly fall in five years and there are also fears that Brexit will disrupt the economy.
The last rate rise was in November 2017 – the first time interest rates were raised since the financial crisis – with speculation growing the next rise would be sooner than expected.
Meanwhile, the MPC voted unanimously to maintain the stock of corporate bond purchases at £10bn and UK government bond purchases at £435bn. However, it has revised the level of bank rate at which it will reduce purchase of assets from 2% to 1.5%.
“Any reduction in the stock of purchased assets will be conducted at a gradual and predictable pace. Decisions will take into account any impact of changes on overall monetary conditions, in order to achieve the inflation target [of 2%],” noted minutes of the MPC meeting. The committee also cautioned that guidance could be reversed if it judges bank rate to be insufficient to achieve inflation target.
The MPC would meet on 2 August to reassess the economic situation for a rate rise.
Why Bank of England held interest rates
