UPDATE: 7:35 a.m. EDT — The Bank of England decided to maintain its key interest rate at 0.5 percent, as was widely expected, in a bid to meet its 2 percent inflation target. The rate has been held at the current level since March 2009.
The central bank, which has expressed concerns about Britain's possible exit from the European Union, said in a statement, that “a vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy.”
The Bank’s Monetary Policy Committee also voted “to maintain the stock of purchased assets financed by the issuance of central bank reserves” at 375 billion pounds (about $530 billion).
With only a week to go for the United Kingdom’s public referendum on whether it should stay in the European Union, the Bank of England is expected to maintain the interest rate at 0.5 percent Thursday, a level where it has been for over seven years. BOE Governor Mark Carney warned last month that a vote to leave the EU could lead to a “technical recession” in the U.K.
The Bank’s Monetary Policy Committee will meet at 12 noon local time Thursday (7 a.m. EDT) in London, when it will likely discuss Brexit and also other factors that affect the country’s economy. Some of them include low inflation, which was at 0.3 percent on an annual basis in May, far below BOE’s intended 2 percent; and slowing economic growth, which clocked 0.4 percent for the first quarter of 2016, down from 0.6 percent in the last quarter of 2015, and expected to be hit further due to Brexit worries.
There are also serious currency concerns, with the pound having lost 3.75 percent against the dollar so far this year, and 8.77 percent over the last 12 months. Several bankers, economists and analysts, including BOE’s Carney, have warned of a further, sharp fall in the value of the British currency in case of Brexit, which could push the currency to a 30-year low of below $1.3.
There has been some good news too, though. The unemployment rate fell to 5 percent, according to the latest data, and employment stands at a record figure of 31.6 million. But even that comes with a caveat: Average weekly wage growth remained constant at 2 percent in the three months to April.