Bank of England to keep interest rates at 0.1%

The Bank of England (BoE) have announced interest rates will remain unchanged on Thursday at 0.1% and will maintain quantitative easing at £745bn.

The Bank also announced in their monetary policy, “the wider economy and banks’ balance sheets would be boosted by stimulus.”

This comes as Sterling is expected to fall as uncertainty over the economy is growing along with Brexit trade talks seem to have stalled, with the transmission period coming to an end in just over four months’ time.

Despite the pound seeing its largest rise in more than a decade, investors and traders are wary of the pound’s prospects, especially as the Brexit  transmission period end on 31 December, according to a Reuters poll.

Jordan Rochester at Nomura said: “The dip is because it seems like the uncertainty over Brexit will continue until we get to around September or October.

“So, until we know what is going on it can’t trade as well.

“I lean towards a deal, but it doesn’t mean the same euphoria for sterling as it used to.

“The deal will be bare bones – it might be that in Q1 we are still adjusting to a new trading agreement and you do see all of the foretold Brexit border chaos.”

The central bank warned of risks from taking interest rates below zero, and the economy will take longer to recover to pre-Covid.

Alex Maddox, Capital Markets & Digital Director at Kensington Mortgages said, “The Monetary Policy Committee seems to be holding back some of its firepower, in case we see a downwards lurch in activity. The economy is beginning to reopen, which is good news, but most economists are predicting unemployment to rise by a significant amount in the fourth quarter once the furlough scheme ends. Until the MPC sees the true magnitude of post-furlough job cuts, they want to keep options open – which may even include negative rates.”

Jon Hudson, UK equities investment manager at Premier Miton said, “The decision to keep policy on hold today was largely expected. Inflation remains well short of target but with unemployment set to step up when the furlough scheme ends in October, it appears sensible to leave some powder dry for now.”

Richard Carter, Head of Fixed Interest Research at Quilter Cheviot added, “Today’s Bank of England meeting was never likely to produce any major policy changes with markets more focussed on the MPC’s tone and assessment of the economic outlook.

“We expect the UK to require further stimulus as we head towards the end of the year due to the twin threats of Covid-19 and Brexit. This support is likely to be all the more pressing given the scheduled wind down of the furlough scheme in October.”