The Bank of England kept interest rates unchanged, wrong-footing many investors who had expected the first cut in more than seven years with Britain's economy reeling from last month's vote to leave the European Union.
The BoE said it was likely to deliver stimulus in three weeks' time, possibly as a “package of measures,” once it has assessed how the June 23 referendum decision has affected the economy, the world's fifth largest. “In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August,” the Bank said in minutes of its July meeting.
“The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round.”
Of the Bank's nine rate-setters, only one - Jan Vlieghe, who had sounded increasingly in favour of more help for the economy - voted for a rate cut.
Chris Williamson, chief economist with financial data firm Markit, said the BoE had opted not to rush into “a knee-jerk reaction” to the Brexit vote.
“Policymakers will therefore need to do a lot more to shore up confidence and keep the gears of the economy turning in the coming months,” he said. The surprise decision to keep rates on hold pushed up sterling to a two-week high against the U.S. dollar of $1.3480 and British government bond yields rose.
