The Bank of England’s Monetary Policy Committee (MPC) has unanimously voted to maintain the bank rate at 0.5%, contrary to speculation in the press.
Some commentators had expected at least one member to vote for a rate cut to 0.25% - while nobody expected enough votes for this to actually happen, it would have been useful as a signal of further action in the months to come.
In addition to the base rate being kept at 0.5% for the 86th consecutive month, is the news that growth in the UK has stalled and that the consumer prices index (CPI) rate of inflation rose to 0.5% in March which is still far below the 2% inflation target. This has been attributed to falling energy and food prices. What’s more, the Bank believes that slow growth will continue into the second quarter of the year.
The report issued by the Bank of England states: “The most significant risks to the MPC’s forecast concern the referendum.”
Andy Scott, economist at HiFX agrees: “Anecdotal evidence suggests [the referendum] is weakening confidence and causing companies to put investment plans on hold until the outcome is known. They [the MPC] highlighted the risks around Brexit such as a significant depreciation in Sterling, a rise in unemployment and higher inflation.”
Following this poor data, George Osborne says: “Today we have a clear and unequivocal warning, not just from the Governor of the Bank of England but also in the collective judgement of the Monetary Policy Committee, that a vote to leave would mean both materially lower growth and notably higher inflation.” He goes on to add: “So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods [if we leave].”
The EU referendum is one of the more polarising topics in the UK so it’s important to disassociate motive from fact in statements such as these. With the Bank’s report admitting that traditional economic forecasting models are becoming less reliable than they used to be, one thing is clear: whatever you believe is best for the future of the UK, even the experts aren’t pretending they have all the answers.
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