EU Vote Warning As Bank Rate Left On Hold

The Bank of England has left interest rates on hold at 0.5% marking seven years at which they have remained at the historic low - and warned of the impact of uncertainty over the EU referendum.

All nine members of the Bank's Monetary Policy Committee (MPC (KOSDAQ: 050540.KQ - news) ) voted to keep rates at the same level they have been since March 2009, when they were cut to try to help nurse the economy back to health from recession.

Continued low interest rates have boosted borrowers who have benefited from rock-bottom mortgage rates but savers have suffered. Analysis from Hargreaves Lansdown finds that they have lost out on about £160bn in interest compared with rates in 2008.

Announcing its latest decision, the MPC said uncertainty over the EU referendum was likely to have been a key factor in the recent fall in the pound and warned that this uncertainty could also delay some spending decisions and weigh on demand in the economy in the short term.

However it said that overall the outlook for the UK economy was little changed from the time of the Bank's quarterly inflation report last month and maintained its stance that the next move in rates would be a rise rather than a cut.

The announcement comes a day after the independent Office for Budget Responsibility downgraded its growth forecasts for the UK for every year until 2020.

Meanwhile, the US Federal Reserve has also said it is leaving interest rates on hold amid slowing global growth and turbulence in financial markets - while also saying it expects to see fewer rate hikes this year than previously expected.

The Bank of England's rates decisions target inflation at 2% but the latest reading of 0.3% for January was well below that, and also a little lower than Bank officials had expected.

It (Other OTC: ITGL - news) said it saw continued growth in advanced economies though emerging markets looked set for a slowdown.

The Bank's referendum warning comes after governor Mark Carney clashed with a eurosceptic MP earlier this month when he warned that quitting the EU posed the "biggest domestic risk to financial stability".

Vicky Redwood, chief UK economist at Capital Economics, said: "The MPC's decision to leave interest rates on hold at 0.5% today – marking the seventh anniversary of rates being at this record low – was unsurprising given the softness of recent activity indicators and heightened uncertainty about the economic outlook.

"The combination of referendum uncertainty and fiscal austerity will keep rates on hold for a while yet – albeit not for as long as markets think."