'Brexit' may de­lay spend­ing as key rate kept at 0.5pc

The Pak Banker - - COMPANIES/BOSS -

Bank of Eng­land of­fi­cials kept their key in­ter­est rate at a record low and said un­cer­tainty stem­ming from Bri­tain's ref­er­en­dum on its Euro­pean Union mem­ber­ship may de­lay in­vest­ment de­ci­sions and curb growth.

The nine-mem­ber Mon­e­tary Pol­icy Com­mit­tee, led by Gov­er­nor Mark Car­ney, unan­i­mously agreed to main­tain the bench­mark at 0.5 per­cent -- where it's been for seven years. The de­ci­sion was taken against a back­drop of fee­ble in­fla­tion, slow­ing global growth and con­cern that the U.K. will vote to quit the EU on June 23.

"There ap­pears to be in­creased un­cer­tainty sur- round­ing the forth­com­ing ref­er­en­dum on U.K. mem­ber­ship of the Euro­pean Union," of­fi­cials said in the min­utes of their March meet­ing. "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 of ag­gre­gate de­mand in the near term."

The min­utes showed the cen­tral bank's broader eco­nomic view is sim­i­lar to the one it out­lined in its Fe­bru­ary In­fla­tion Re­port, where it con­trasted do­mes­tic strength with a dark­en­ing in­ter­na­tional out­look. That echoes the Fed­eral Re­serve, which scaled back its pro­jec­tion for U.S. in­ter­est-rate hikes on Wed­nes­day, cit­ing global fac­tors.

"Chal­lenges fac­ing emerg­ing

mar­kets re­mained," the BOE said. Risks to the MPC's pro­jec­tions for global growth "con­tin­ued to lie to the down­side." The pound strength­ened and was up 0.9 per­cent at $1.4385 at 12:08 p.m. Lon­don time. Ster­ling has been one of the weak­est per­form­ing Group-of-10 cur­ren­cies over the past month, as 'Brexit' jit­ters rat­tled in­vestors.

The MPC has a "range of views" on the out­look for in­fla­tion, while agree­ing that cur­rent mon­e­tary pol­icy set­tings are ap­pro­pri­ate for now, the min­utes said. The meet­ing record sig­nals tight­en­ing is still some way off, par­tic­u­larly with the EU poll loom­ing.

Still, ro­bust do­mes­tic con­sump­tion was likely to con­tinue and "the com­mit­tee's best judg­ment was that it was more likely than not that bank rate would need to in­crease over the fore­cast pe­riod to en­sure in­fla­tion re­turned to the tar­get in a sus­tain­able fash­ion," the min­utes said.

Pol­icy mak­ers have sig­naled they're wait­ing for more signs of a pickup in price pres­sures be­fore in­creas­ing bor­row­ing costs. In­fla­tion, at 0.3 per­cent in Jan­uary, has been below the cen­tral bank's 2 per­cent tar­get for two years and the BOE said in Fe­bru­ary the rate will av­er­age 0.8 per­cent this year.

Ques­tions re­mained about the ex­tent to which low price pres­sures will feed in to wages, the min­utes said. Ev­i­dence sug­gested "some ef­fect was likely to be present in the cur­rent wage data," they said. Of­fi­cials said they re­main "watch­ful" for signs that low in­fla­tion is feed­ing in to pay set­tle­ments.

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