The Bank of England made no changes to its benchmark rate or quantitative easing package at Wednesday’s rate setting meeting, but left the door wide open for policy changes at its next gathering in November.
Interest rates remain at a record low of 0.1%, while the total stock of the current quantitative easing package stays at £745 billion.
However, minutes of the Monetary Policy Committee released on Thursday repeat the Bank’s earlier pledge to continue to study the “effectiveness of negative policy rates”, stirring speculation that a rate reduction could come before the end of the year, particularly if negotiations over the UK’s future trading relationship with the European Union collapse.
While MPC members acknowledged that consumer spending has recovered more rapidly than expected in August, they noted that investment intentions remain “very weak and uncertainties among businesses are elevated”. Gross domestic product remains approximately 11.5% below its late 2019 level, despite a near 7% expansion between July and August.
Rate setters expressed concern that official statistics, which revealed a rise in unemployment to 4.1% in the three months to July, may understate the level of joblessness. The MPC reiterated its forecast of a rise in unemployment to 7.5% by year-end, but noted that the “signal from the official unemployment data was hard to interpret currently.”
However, inflation has receded by less than expected at the time of the August MPC meeting, and is expected to remain below 1% over the rest of the year. The Bank has failed to reach its 2.0% inflation target over the past 13 months. The consumer price index rose by just 0.2% in August, as a government subsidy reduced the price of restaurant meals.
The BoE admitted that its projections assumed an “immediate, orderly move to a comprehensive free trade agreement with the European Union” at the start of next year. However, negotiations between the UK and the EU have stalled in recent months, and the UK has threatened legislation that would invalidate a withdrawal agreement concluded last year, adding to an already fraught negotiating climate.
The Committee reached its decision unanimously, and the as-expected outcome was not followed by a press briefing.