Interest rates expected to be kept on hold at record low


Interest rates are expected to be kept on hold tomorrow after last month's emergency cut and amid signs of a post-Brexit vote bounce-back in the economy.

But experts believe further action is still on the cards before the end of the year, despite data signalling the initial shock of the referendum decision may have passed.

Bank of England Governor Mark Carney said last week he was "absolutely serene" about policymaker action after MP allegations that the Bank unleashed its August rate cut and economy-boosting package without sufficient evidence.

In a Treasury Select Committee hearing, he said the cut in rates to a new all-time low of 0.25% from 0.5% and stimulus package worth up to £170 billion had already begun to cushion the blow of the Brexit vote.

Mr Carney confirmed the chances of a technical recession - two quarters in a row of falling output - had gone down since the Bank's moves last month, which was described by experts as "sledgehammer" action.

Recent closely-watched industry data has suggested that major sectors of the economy rebounded strongly in August, with the powerhouse services industry seeing a record-breaking jump in activity after a shock contraction in July.

Mr Carney welcomed signs of a rebound, but suggested some of this was down to the Bank's "timely, comprehensive and concrete'' action.

The Bank's measures had helped support house prices in particular, he added.

Policymakers have already said that another rate cut is likely by the end of the year, to a little above zero.

Howard Archer, chief UK European economist at IHS Insight, said so far the encouraging economic data was not enough to derail further monetary policy moves.

He said: "The recent evidence of UK economic resilience has seemingly diluted the case for more Bank of England stimulus in the immediate future."

"Nevertheless, further Bank action remains very much on the cards, and it could still very well happen in November."

Investec experts are pencilling in a rate cut to 0.1% in November, when the Bank will have the next quarterly set of forecasts to hand in its inflation report.

There is also the possibility of further quantitative easing (QE) before the end of the year, following the Bank's move in August to expand QE for the first time since 2012, by £60 billion to £435 billion.

Policymakers have likewise said there is room to extend all of their economy-boosting measures if needed, with potential to increase the initial £10 billion corporate-debt buying programme and the new scheme worth up to £100 billion to encourage banks to lend to households and businesses.

But there are concerns over the impact of some of these measures on inflation, which is expected to rise markedly due to the weaker pound.

Inflation remained steady at 0.6% last month as rising food and transport prices were offset by a slip in the cost of clothing, wine and hotels.

It is expected to be only a temporary reprieve, though, with experts forecasting sterling's weakness to bump up prices of imported goods, food and commodities.