The BoE has again left interest rates on hold and reiterated its belief that the monetary policy response to Brexit could ultimately push rates in either direction.

 

Following its latest meeting on 19 June, the nine-member Monetary Policy Committee (MPC) voted unanimously to maintain its existing monetary policy stance. This marks the tenth consecutive month that the bank rate has remained unchanged since it was increased from 0.5% to 0.75% last August.

The minutes of the meeting, however, continue to read very much like a holding operation; on one hand they stressed the downside economic risks that could necessitate a lowering of rates, whilst also leaving the door open to higher rates should these risks fail to materialise.

Specifically, the minutes stated: “The Committee continues to judge that, were the economy to develop broadly in line with projections that include an assumption of a smooth Brexit, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate.”

However they also stressed that the economic outlook continues to depend heavily upon the nature and timing of the UK’s EU departure and, in particular, whether the transition is abrupt or smooth. The future path of interest rates therefore appears to remain inexorably linked to Brexit with the minutes adding: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”

The MPC’s next meeting is scheduled to take place on 1 August, although the latest inflation figures appear to have eased any immediate pressure to alter policy. When setting rates, the BoE is tasked with keeping inflation within one percentage point either side of a 2% target; and ONS data released last month showed that inflation in May fell to exactly 2%.