LONDON – The Bank of England decided Thursday to keep its main interest rate at a record low of 0.25 percent as the economy weakens ahead of Britain’s departure from the European Union.
Though higher rates would help limit inflation, which has been rising, the policymakers erred on the side of caution after economic growth more than halved to 0.3 percent in the first quarter compared with the previous three months.
The Monetary Policy Committee voted 7-1 to keep rates on hold, with one member seeking a quarter point increase.
The bank’s governor, Mark Carney, has said volatility and uncertainty would govern the process of Brexit, even though negotiations have yet to begin.
The pound has been volatile since the June 23 vote, at one point losing a fifth of its value. That’s pushing up inflation, which is now 2.3 percent annually, within the central bank’s goal of about 2 percent. Analyst Alan Clarke at Scotiabank has predicted that despite the pound’s recent rebound, inflation will rise above 3 percent this year.
But while higher inflation might suggest higher interest rates, the central bank is worried also about economic growth, which would get further hurt by a rate hike.
“Inflationary pressures and uncertainty around Brexit will persist and rushing into a decision now could be dangerous. The Bank of England’s verdict shows that they are mindful of the possibility of lower growth as companies put investment on hold in the face of this uncertainty,” Kerim Derhalli, CEO of investment app invstr.
In the minutes to Thursday’s decision, the bank said that if the economy performs as expected, its interest rates may be raised “by a somewhat greater extent” than is currently expected in financial markets.
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