MercoPress. South Atlantic News Agency

Bank of England leaves interest rates on hold, but ready to cut over global and Brexit uncertainties

The Bank's Monetary Policy Committee (MPC) voted 7-2 in favor of keeping the official rate on hold.

The Bank of England has kept interest rates on hold at 0.75% but indicated it may cut the cost of borrowing if global economic growth fails to recover or Brexit uncertainties persist. It said the UK economy was expected to pick up from its current weakness.

However, the Bank said it would monitor companies' and households' reactions to Brexit as well as global growth.

The Bank's Monetary Policy Committee (MPC) voted 7-2 in favor of keeping the official rate on hold.

“If global growth fails to stabilize or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in GDP growth and inflation,” the committee said in a statement.

Third-quarter gross domestic product (GDP) growth of 0.3% was “a little weaker” than the MPC expected at its November meeting, when members also voted 7-2 to keep rates on hold.

It said household spending continued to grow steadily, but business investment and export orders had remained weak.

The Bank predicted fourth quarter growth of 0.1% which again was a weaker outlook than at its last meeting. It now expects inflation to subside to 1.25% in the spring. That largely reflects weakness in the construction sector, it said.

The Bank's agents around the UK, who monitor regional economic activity, gave the construction sector its lowest score in six-and-a-half years. The agents also highlighted falling manufacturing exports, with the car-making sector suffering one of the biggest declines.

The weak economy meant companies could not fully pass on higher costs to their customers even as those costs rose, squeezing profit margins.

“All sectors were affected, but margins were most squeezed in construction and consumer facing sectors,” the MPC said.

For those consumer-facing firms, the pressure on margins was heightened by the shift towards online shopping, higher business rates and the rise in the National Living Wage, it added.

That was one factor adding to weak investment. “Investment intentions remain depressed by slower global growth and political uncertainty,” the MPC said. However, it also said that if global growth did stabilize and Brexit uncertainties faded then the next move in interest rates may be up.