Regions

Bank of England Keep Interest Rate at 0.5% Low

March 21
6:01 AM 2016

Nine member of the monetary policy committe (MPC) in Bank of England (BoE) has unanimously voted on Thursday to maintain interest rate as low as 0.5%. Issue of Brexit and weak global outlook is the main factor.

Bank of England cut its low interest rate to the historic low in 2007, as the global financial crisis approaching. Prior to Thursday, the low interest rate has been maintainced for consecutive seven years. In Thursday decision, BoE said the decision was taken as uncertainty of UK membership in the European Union and the weak outlook on global economy has weakened poundsterling.

The British central bank expected the low interest rate will hold the inflation, in order to keep the 2% target within two years.

Recently governor Mark Carney has higlighted benefits of UK to maintain its membership in the EU, as the nation is bitterly divided on the issue. On June 23, UK will hold a referendum to vote whether United Kingdom will stay in EU or leave the bloc.

The Guardian reported MPC said in the release regarding the decision, "There appears to be increased uncertainty surrounding the forthcoming referendum on UK membership of the European Union. That uncertainty is likely to have been a significant driver of the decline in sterling. It may also delay some spending decisions and depress growth in aggregate demand in the near term. Overall, however, the committee judges that the outlook for domestic activity to be little changed from the time of the February inflation report."

While economist at ING Financial Markets James Knightley said the decision showed the central bank is aware of the Brexit risk to British economy.

"The BoE acknowledge that the Brexit vote has weighed on sterling and may also delay some spending decisions and depress growth of aggregate demand in the near term. This is nothing more than stating the obvious, but it could be the first step into what could become a more concerted campaign to highlight the economic risks," he said.

Meanwhile CNBC reported the the slowdown of British economy, as GDP growth is now seen at 2.0% in 2016, down from the 2.4% forecast which was announced last November. The economy is then seen expanding by 2.2 percent in both 2017 and 2018.

Chief Economist at Markit financial information firm Chris Williamson told BBC the rate decision was not a surprise considering the Brexit. "The Bank highlighted how uncertainty regarding the June vote on the UK's membership of the EU is exacerbating wider concerns about the domestic and global economic outlook."

Bank of England decided on Thursday to maintain low interest rate at 0.5%. This decision marked the low interest rate for consecutive eight years. Issue on Brexit has been the major factor for the decision to be taken.

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