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Second rate cut 'likely if growth fails to pick up'

By Staff Reporter

Published 16/09/2016

Bank of England governor Mark Carney said MPC action had cushioned the Brexit blow
Bank of England governor Mark Carney said MPC action had cushioned the Brexit blow

The Bank of England kept interest rates on hold after last month's emergency cut, but said a further reduction was still on the cards despite signs of a bounce-back in the economy, according to a report.

Minutes of the latest Monetary Policy Committee (MPC) meeting showed members voted unanimously to keep rates at 0.25%, after last month's dramatic cut from 0.5% - the first since 2009.

Policymakers said that the immediate impact of the Brexit vote on the economy was not quite as bad as initially feared.

The MPC explained that it expected "less of a slowing in UK gross domestic product (GDP) growth" in the second half of 2016.

But it added the economy was still set to suffer a "material slowing" in growth, with internal estimates suggesting it will decline to between 0.2% and 0.3% in the third quarter.

This will be a sharp slowdown on the 0.6% growth seen in the previous three months, but still not as bad as the Bank had feared in its August forecasts, when it said that growth was set to flatline between July and September.

It said recent closely watched industry data suggesting that major sectors of the economy rebounded strongly in August had been stronger than expected and were "consistent with somewhat less of a slowing in near-term GDP growth".

The Bank's economic stimulus action last month helped boost markets and financial asset prices more than expected, according to the minutes.

House prices and consumer spending have also held up surprisingly well, the minutes added.

Official figures out separately showed retail sales falling by a far less-than-predicted 0.2% month-on-month in August, while they leapt by more than 6% year-on-year.

Bank governor Mark Carney told MPs last week that the August move to cut rates to the new all-time low of 0.25% and unleash a stimulus package worth up to £170bn had already begun to cushion the blow of the Brexit vote.

He also confirmed that the chances of a technical recession - two quarters in a row of falling output - had gone down since the Bank's action.

But policymakers have already said another rate cut is likely by the end of the year, to a little above zero, with economists expecting more measures in November, when the Bank will have its next set of economic forecasts.

The MPC confirmed in the latest rates decision that more action was likely unless the economy showed a markedly better-than-expected performance

Belfast Telegraph

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