EU referendum uncertainty could hit UK growth, Bank warns as rates held again

The Bank of England warned uncertainty over the EU referendum could hit UK growth as it marked seven years of record low interest rates by keeping borrowing costs on hold once more.

Members of the Bank's Monetary Policy Committee (MPC) said the forthcoming vote on EU membership may "delay some spending decisions and depress growth", after pinpointing Brexit fears as the possible cause for the recent fall in the value of the pound.

The comments came as all nine policymakers on the MPC voted to leave rates at 0.5% - where they have remained since March 2009 - and keep its quantitative easing programme on hold at £375 billion.

Minutes of the meeting also showed the MPC stood by its stance that the next move for rates would be a rise rather than a cut, stating "it was more likely than not that Bank rate would need to increase over the forecast period" in order to meet its inflation target of 2%.

Experts are predicting the Bank will keep rates on hold at 0.5% until 2017.

The decision to keep rates on hold comes after the Office for Budget Responsibility (OBR) slashed its growth forecasts for the UK economy in Chancellor George Osborne's Budget on Wednesday.

It downgraded its forecast for gross domestic product (GDP) from 2.4% to 2% this year, from 2.5% to 2.2% in 2017, from 2.4% to 2.1% in 2018 and from 2.3% to 2.1% in both 2019 and 2020.

The OBR also forecast lower inflation at 0.7% this year and 1.6% next year.

It said its forecasts for the UK economy were impacted by concerns over the global economy and its decision to revise down its expectations for productivity growth, which measures the amount of output the economy can produce against the number of hours worked.

The MPC said it would analyse the announcements in the Budget during its preparation for its report in May.

Darkening skies over the global economy, the oil price rout and turbulence in the markets have led some experts to predict that the Bank might decide to cut rates over the coming months.

But Howard Archer, chief European and UK economist at IHS Economics, said he was "doubtful" that the Bank would relax monetary policy through trimming interest rates to 0.25% or reviving quantitative easing.

He added: "We do not believe that the UK economy is weak enough to warrant such a move, especially given the tightness of the labour market and the support to growth that should eventually feed through from sterling's marked weakening."

Barry Naisbitt, chief economist at Santander, said the Bank will wait to see the impact of recent monetary policy decisions in Europe and the US before making its next move on rates.

Bank of England governor Mark Carney told MPs during a hearing at the Treasury Select Committee that, if needed, the Bank could launch fresh stimulus measures to boost the UK economy, including buying assets through quantitative easing or cutting interest rates closer to zero.

But he said he would not follow the likes of Japan by installing negative interest rates.