Bank of England Keeps Rate Unchanged, Upgrades Growth Forecast

(Bloomberg) — The Bank of England kept its benchmark interest rate unchanged after lifting it to the highest since 2009 last month.

The Monetary Policy Committee, led by Governor Mark Carney, voted unanimously to hold the key rate at 0.75 percent, as expected by all 60 economists in a Bloomberg survey.

Policy makers said economic activity has been better than expected, pointing to growth of 0.5 percent in the third quarter instead of the August estimate of 0.4 percent, according to minutes of the meeting published Thursday.

They also noted that consumer spending and pay settlements appear to have been stronger than anticipated in their last forecasts.

The bank reiterated its view that “limited” and “gradual” rate increases will be needed over the next few years to return inflation to its 2 percent target. Investors see the next quarter-point increase arriving in May.

The committee also noted that downside risks to global growth had increased as trade tensions escalated and emerging markets became more volatile. It reiterated that Brexit was the biggest challenge to the outlook and that uncertainty about the U.K.’s future outside the European Union had risen since the last meeting.

Smooth Brexit

The BOE’s forecasts are predicated on a smooth adjustment to whatever Brexit outcome emerges.

The bank’s analysis of financial markets revealed that there had been an increase in interest-rate options bets on a central-bank interest-rate cut in 2019. Investors also see greater downside risks to the pound.

The BOE published the latest report from its agents around the country. They found that underlying consumer spending growth remained modest, and Brexit fears had contributed to a slight softening in investment intentions. However, the labor market remained tight and pay settlements had risen from a year earlier.

On the outlook for consumer prices, the bank said that a planned cap on energy prices will lower the inflation rate next year by more than policy makers had assumed.

The U.K. Treasury confirmed earlier this week that Carney will stay in his role a bit longer than previously planned. He’ll now serve through January 2020 to be on hand for longer should the U.K. experience a turbulent exit from EU after its formal separation in March.

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