Bank of England jolts sterling as it keeps rates on hold, August move expected

Thu Jul 14, 2016 1:11pm EDT
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By William Schomberg and David Milliken

LONDON (Reuters) - The Bank of England wrong-footed investors by keeping interest rates on hold on Thursday, but held out the prospect of a stimulus package soon to help the economy cope with Britain's decision to leave the European Union.

The battered pound surged by more than 2 percent as the central bank held its Bank Rate at 0.50 percent, contrary to widespread expectations of a first cut in more than seven years.

Governor Mark Carney said two weeks ago that he expected the BoE to give the economy more help over the summer.

But Carney and his fellow rate-setters said on Thursday they would wait three more weeks to see the intensity of the Brexit hit to the economy before deciding on the need for any stimulus.

"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," minutes of the meeting said.

"The precise size and nature of any stimulatory measures will be determined" in August, it said.

Only one of the Monetary Policy Committee's nine rate-setters - Jan Vlieghe, who has previously floated the idea of more help for the economy - voted for a cut at the July meeting.

The BoE has held its Bank Rate at 0.5 percent since March 2009, when the global financial crisis was hammering Britain. Investors have spent much of the past three years speculating about when borrowing costs would rise as the economy picked up.   Continued...

A wooden carving of the Bank of England logo is seen on a desk during a news conference at the Bank of England in London, Britain July 5, 2016. REUTERS/Dylan Martinez/File Photo