Bank of England Holds Bank Rate at 0.50% in Wake of Brexit

U.K. stocks fall but the pound soars after the unexpected decision.
By Lisa Botter ,

The Bank of England today held the key bank rate to 0.50%, defying expectations that the central bank would lower the interest rate to combat the impact of the U.K.'s decision to leave the European Union in June.

The Monetary Policy Committee voted eight members to one to keep the rate steady. One member, Gertjan Vlieghe, voted to cut the bank rate to 0.25%.

The committee voted unanimously to maintain the asset purchase program at £375 billion ($500 billion).

Most members expect monetary policy to be loosened in August, the central bank said.

"The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon... The committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the Committee's updated forecast, and their composition will take account of any interactions with the financial system," the committee said.

The minutes stated that since the U.K.'s June 23  vote to leave the EU the pound has fallen 6% and short- and long-term interest rates have declined. Given this fall inflation expectations have risen moderately for short-term horizons.

The committee said that the decision to leave the EU could leader to a "significantly lower path for growth and a higher path for inflation than the central projections set out" in May.

The FTSE 100 dropped dramatically after the report and was recently trading 0.03% down at 6,669.06.

The pound was recently up 1.75% against the dollar at $1.3375.

The decision comes a day after Theresa May was appointed prime minister. In turn, she appointed Philip Hammond as Chancellor of the Exchequer, replacing George Osborne.

Hammond today told the BBC that Bank of England Governor Mark Carney is doing an "excellent job" and noted that "the markets do need reassurance."

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