Bank of England maintains low interest rates in run up to referendum

Marina Gerner
17 June 2016

The Bank of England announced on Thursday (16 June) that it would keep interest rates at their current record low of 0.5%. The Monetary Policy Committee repeated its warnings about the potential adverse effects on the economy of a Brexit.

Commenting the announcement, Ian Kernohan, economist at Royal London Asset Management, says: “There was zero chance that the Bank of England would change policy today, but it will be interesting to see how they respond to the result of next week's EU referendum.” He adds that inflation remains well below target.

Maike Currie, investment director for personal investing at Fidelity International, says: “The nation gearing up for the vote next week is a short-lived uncertainty, but there are more persistent economic factors causing a drag on growth.

“Weak inflation, a slowing economy and low wage growth presents a cocktail of concerns which has no doubt contributed to this decision.”


Raw deal for consumers

Calum Bennie, savings expert at Scottish Friendly, says: “The current uncertainty caused by the looming referendum has triggered sterling to be increasingly volatile and interest rates look like staying at rock-bottom for months, if not years.

“Unless the result of the referendum, whatever it may be, gives a boost to the markets, consumers face a raw deal this summer. Not only will their cash savings remain in the doldrums, but their spending power, particularly abroad, could be hit.”

The Bank of England's announcement follows last night's Fed announcement to keep US rates unchanged. The next question, says Currie, is: if not June, then when?

New York Fed member William Dudley suggested recently that a July hike was a possibility, but Currie suggests Fed chair Janet Yellen will only move when she has the opportunity to make her reasoning absolutely clear. “September seems like a much more likely option,” Currie says.

This article was originally written for our sister publication, Money Observer.

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