In its first policy meeting since the landmark referendum in which Britain voted to leave the European Union, the Bank of England (BoE) surprised markets by choosing to leave its key interest rate unchanged at 0.5%.
Markets had expected the central bank to deliver on suggestions from its governor, Mark Carney, that monetary easing would be required over the summer to shore up confidence in the world’s fifth largest economy. Despite the decision to hold the rate at 0.5% where it has been since 2009, the Bank’s Monetary Policy Committee (MPC) left the door open to stimulus measures when it next meets in August.
“Markets had already priced in a cut in interest rates into the value of sterling on the forex markets so when it didn’t materialize, the currency jumped against the US dollar and the euro,” said Kit Morton, chief economist at ISG Global.
To a lesser extent, markets had also hoped that the BoE would expand its quantitative easing program, currently standing at £375 billion, but the MPC left the amount unchanged.
ISG-Global believes that the shock of the decision to end its 43-year membership of the European project and the disruption caused by companies’ plans to adapt to uncertainty in future trade will see the UK enter a recession by the fourth quarter of 2016.
“There’s only so much that monetary stimulus can achieve and that’s a message central bankers around the world have trying to impress upon leaders. The British may come to regret the decision to leave the EU,” concluded Morton.


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