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Update: Bank of England opts to hold interest rates despite pressure

The Bank of England’s Monetary Policy Committee (MPC) has unexpectedly opted to hold interest rates at their current level of 0.5%, despite widespread pressure to lower rates to stave off a potential recession following the EU referendum.

Its nine-member MPC voted 8-1 to hold rates amidst a backdrop of conjecture that the bank was considering a cut to the baseline interest rate that would see historic lows of 0.25% as well as restarting the bank’s quantitative easing programme.

Bank Governor, Mark Carney, had made intimations in recent days that a rate cut is coming, and a chorus of city economists have urged the bank to make the move now to stave off a recession.

It comes after weeks of turmoil in the markets which have seen stocks on the FTSE-100 dip to annual lows before rebounding, with bank shares some of the hardest hit.

Meanwhile, sterling has plunged to 31-year lows against the dollar as investors flee from the currency due to jitters about the long-term economic prospects of the UK when it eventually leaves the EU.

Commenting ahead of today’s announcement, Howard Archer, chief UK economist at London’s IHS, believes the bank has little option but to inject some sort of stimulus into the economy, although this may not necessarily entail a rate cut.

He said: “With the UK economic outlook weakened by the Brexit vote, there can be very little doubt — if any — that the Bank of England will enact some stimulus on Thursday.”

“The only question really seems to be exactly what action will the (MPC) take?”

The need for the bank to step in and do something has been underlined by a procession of consumer surveys in recent weeks which have highlighted shaken consumer sentiment at the prospect of Brexit.

Research by GfK last week saw the biggest drop in consumer confidence in 21 years, leading Carney to admit that ‘some monetary policy easing will likely be required over the summer’.

However, it now seems the MPC will bide their time and delay a decision until its next meeting in three weeks time, having likely been influenced by the recent rally experienced by the pound this week and positive gains in the FTSE-100.

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