Why did Bank of England hold interest rates?
What the move says for next year’s economic prospects
The Bank of England has voted not to raise interest rates, just hours after the US Federal Reserve’s controversial decision sparked a global market sell-off.
Against a backdrop of weaker global growth, the Bank of England’s powerful nine-member Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.75%.
“In the latest from the Bank of England's interest rate setters, it's not what they did that's eye-catching” says BBC economics correspondent Andy Verity, “it's what they said”.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Cutting its growth forecast to 0.2% in the final quarter of 2019, the Bank warned a lack of clarity around Brexit, combined with a slowing global economy and weaker outlook for the eurozone is harming the UK economy.
“Further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth. Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term. The housing market has remained subdued” the MPC said.
“The result is that all businesses currently have to pay more to borrow on international markets, but British companies have seen the biggest rise in costs” says the Daily Telegraph.
This means businesses are investing less, and will continue to do so for months.
Falling oil prices should ease pressures on the cost of living, bringing inflation down below the Bank’s 2% target in January.
“This also removes pressure to raise interest rates” says the Telegraph, though the MPC said more increases were likely over the coming years because low unemployment and rising wages are expected to push prices upwards.
Business Insider says “the timing of any rate hikes remains unclear particularly with the looming spectre of a possible no deal Brexit hanging over the UK”.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said he expects the MPC to raise rates by a quarter of a percentage point in May, after the UK formally leaves the EU.
“On balance, we continue to think that the MPC won’t wait for signs of a recovery to emerge in the data and will raise Bank Rate to 1.0% in May, once MPs have signed off a Brexit deal late in [the first quarter of 2019]” he said.
“But a longer delay certainly is possible, given the risk that the article 50 negotiating period might be extended, potentially keeping growth below-trend for longer, and the tail risk of a no-deal Brexit.”
The BoE decision came less than 24 hours after the US Federal Reserve announced it was pressing ahead with its own rate rise, despite pressure from Donald Trump and concerns over the US economy overheating.
That decision, and the Fed’s prediction of two more hikes in 2019, “sparked a wave of selling in the markets”, reports The Guardian.
Japan slumped into bear market territory, as shares dropped across Asia, while in Europe, the FTSE 100 crashed to a 27-month low at the open, with European stocks also hitting their lowest points since late 2016.
Most worryingly, Wall Street is on course for its worst December since the Great Depression after a fourth interest rate rise of 2018 at the US central bank stoked fears that its policymakers are pushing markets to breaking point.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Today's political cartoons - December 13, 2024
Cartoons Friday's cartoons - intelligence concerns, Assad knocked, and more
By The Week US Published
-
How would reaching net zero change our lives?
Today's Big Question Climate target could bring many benefits but global heating would continue
By Chas Newkey-Burden, The Week UK Published
-
2024 and the rebirth of body horror
Talking Point In a year of female-focused 'scintillating gore', have horror films gone too far?
By Chas Newkey-Burden, The Week UK Published
-
Fed cuts rates half a point, hinting victory on inflation
Speed Read This is the Fed's first cut in two years
By Peter Weber, The Week US Published
-
US job growth revised downward
Speed Read The US economy added 818,000 fewer jobs than first reported
By Peter Weber, The Week US Published
-
US inflation drops below 3%, teeing up rate cuts
Speed Read This solidifies expectations that the Federal Reserve will finally cut interest rates in September
By Peter Weber, The Week US Published
-
Is the Fed ready to start cutting interest rates?
Today's Big Question Recession fears and a presidential election affect the calculation
By Joel Mathis, The Week US Published
-
Why are global stock markets plunging?
Today's Big Question Europe, Asia and Wall Street have all suffered big falls after US economy data spooked investors
By Rebekah Evans, The Week UK Published
-
Will the housing slump ever end?
Today's Big Question Probably not until mortgage rates come down
By Joel Mathis, The Week US Published
-
Are we getting a 'hard landing' after all?
Today's Big Question Signs of economic slowdown raise concerns 'soft landing' declarations were premature
By Joel Mathis, The Week US Published
-
Holiday season: Fed optimism cheers investors
Feature The feds believe their 'pivot' will make a recession unlikely
By The Week US Published