The Bank of England’s Monetary Policy Committee has voted to keep interest rates at their current low of 0.25 percent.
The MPC will also continue with its programme of sterling non-financial investment-grade corporate bond purchases totalling up to £10 billion, as well as its £60 billion programme of UK government bond purchases. The Bank of England’s quantitative easing programme will also remain unchanged at £70 billion per month.
All decisions were unanimous, with the committee voting 9-0.
The MPC admitted that business activity and investor sentiment has warmed following its crash after the European Referendum result, with data and the preliminary GDP estimate expected to come in above expectations for the third quarter.
The Bank of England raised their growth forecast for the year, with the UK economy now expecting to grow by 2.2 percent in 2016, up from 2 percent previously.
In 2017, it now sees growth of 1.4 percent, which is far higher than the 0.8 percent initially expected by the MPC. In 2018 , however, the growth forecast was cut to 1.5 percent, from 1.8 percent.
However, the MPC said sterling remained at record weakness and that output growth was likely to be lower than previously anticipated. A lack of clarity over future trading arrangements, and the risk that UK-based firms’ access to EU markets could be materially reduced, means uncertainty is likely to affect the economy in the short-term.
The MPC reiterated its goal to return inflation to 2 percent before moving key interest rates. In a statement on Thursday, the bank said this may happen quicker than anticipated:
“Largely as a result of the depreciation of sterling, CPI inflation is expected to be higher throughout the three-year forecast period than in the Committee’s August projections.
“In the central projection, inflation rises from its current level of 1 percent to around 2¾ percent in 2018, before falling back gradually over 2019 to reach 2½ percent in three years’ time.
“Inflation is judged likely to return to close to the target over the following year.”