The Bank of England held its key lending rate unchanged Thursday, but hinted at modestly faster hikes ahead even as it trimmed near-term growth forecasts and warned of the risk associated with Britain's exit from the European Union, highlighting the complex monetary policy task facing Governor Mark Carney.
The nine members of the Bank's Monetary Policy Committee voted unanimously to hold its key Bank Rate unchanged at 0.75%, following on the second rate hike since the global financial crisis in August, but shaved a percentage point from its growth and inflation forecasts for the next two years while noting that the "market interest rate path implies slightly steeper rise" that would take the Bank Rate to 1.4% by 2021. However, it also noted that the outlook will "depend significantly on the nature of EU withdrawal, in particular the form of new trading arrangements, the smoothness of the transition to them and the responses of households, businesses and financial
"The MPC judges that the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction," the Bank said. "The Committee also judges that, were the economy to continue to develop broadly in line with the November Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent."
The pound was marked 1.2% higher from Thursday's close and trading at 1.2922 following the BoE rate decision, with gains supported by an earlier report in the Time newspaper -- later dismissed by government spokespeople -- that officials had reached a tentative agreement with Brussels that would allow U.K. banks to retain access to the single market in financial services following its March 2019 exit.