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Governor's last meeting

Bank holds interest rate as virus spreads fear of slowdown

Bank of England

Verdict awaited from Bank of England (pic: Terry Murden)

The Bank of England voted to hold the interest rate at its current 0.75% amid growing fears that the coronavirus will prompt a global slowdown.

Economists were divided on the merits of a cut and there had been considerable speculation that even if the Bank of England did not cut interest rate to 0.5% this time, more MPC members would favour looser monetary policy.

However, the vote was 7:2, as had been the case in December. No MPC member felt compelled to join Michael Saunders and Jonathan Haskel for an immediate interest rate cut.

This was despite some recent dovish comments earlier in January by MPC members Silvana Tenreyro, Gertjan Vlieghe and Mark Carney indicating that they could favour a near-term interest rate cut if the economy failed to quickly show improvement after the election. 

The rate-setting monetary policy committee also noted that global growth had appeared to stabilise and that there had been a reduction in trade tensions.

Howard Archer, chief economic adviser to the EY Item Club, said: “The Bank considered it was too early to judge the impact of the Coronavirus. The Bank of England also noted possible support to UK growth from the Budget

“However, the MPC has kept the door wide open to a future interest rate cut.

“Consequently, an interest rate cut to 0.50% at the March MPC meeting currently remains very much in play.”

EY says “the likelihood of a rate cut reduction this year will recede as we expect economic activity to become healthier.

“Consequently, we believe that it is more likely than not that interest rates will remain at 0.75% through 2020.

“We expect the Bank of England to start edging interest rates up around mid-2021.”

The FTSE 100 followed Asia stock markets lower on Thursday, with the blue chip index closing down 101.6 poins or 1.36% at 7381.96.

Asian stocks and currencies tumbled further overnight, as the rising death toll from the virus spreading from China led airlines to cut flights and stores to close, increasing pressure on the world’s second-largest economy as fears of a pandemic grow.

The World Health Organization (WHO) announced on Thursday that it was declaring the deadly coronavirus outbreak spreading from China to be a global health emergency.

Japan’s Nikkei fell nearly 2% on Thursday. Hong Kong’s Hang Seng was 2.3% lower.

Oil prices, a barometer of the expected impact of the virus on the world’s economy, resumed their slide. Brent crude shed a percentage point and has dropped 10% in the last 10 days.

Federal Reserve Chairman Jerome Powell acknowledged on Wednesday the risks from any slowdown in the Chinese economy but said it was too early to say what the extent of the impact would be on the United States.

The number of confirmed deaths from the virus in China has climbed to 170 with 7,711 people infected, and more cases are being reported around the world.

“The news flow in the past couple of hours has been quite bleak,” said Prashant Newnaha a Singapore-based strategist at TD Securities. “So the risk off tone continues.”

Today’s meeting of the monetary policy committee was the last attended by the governor Mark Carney before he steps down.

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