Bank of England sticks with rate cut signal despite Brexit bounce

Thu Sep 15, 2016 10:44am EDT
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By William Schomberg and David Milliken

LONDON (Reuters) - The Bank of England said on Thursday it was still likely to cut interest rates to just above zero later this year, even though the initial Brexit hit to Britain's economy was proving less severe than it had predicted only last month.

The BoE's rate-setters voted unanimously to keep Bank Rate at 0.25 percent, the lowest level in the BoE's 322-year history, after cutting it in August for the first time since 2009 to tackle the shock of Britain's vote to leave the European Union.

Policymakers also voted 9-0 to keep their government bond-buying target at August's new, higher level of 435 billion pounds ($574 billion) and to stick with a new plan to buy up to 10 billion pounds' worth of corporate debt.

August's stimulus was Britain's largest since the global financial crisis. But since then a string of indicators have rebounded from July's slump, leading some lawmakers to chide BoE Governor Mark Carney for being alarmist about the Brexit vote.

"A number of indicators of near-term economic activity have been somewhat stronger than expected," the Bank said in minutes of the Monetary Policy Committee's September meeting.

Central bank staff estimated the economy will grow by 0.3 percent in the July-September period, better than their previous forecast in August of a slowdown to 0.1 percent.

Data published earlier on Thursday showed retail sales edged down only slightly last month after the strongest July in 14 years. Retailer John Lewis said the EU vote had had little impact but the full effect was not yet clear.

A Reuters poll of economists showed that Britain is likely to narrowly avoid a recession, in contrast to forecasts a month ago that the economy was poised to contract.   Continued...

A sign is displayed outside the Bank of England in London, Britain August 4, 2016.   REUTERS/Neil Hall/File Photo