"Together with Mark Carney's recent resolution to stay in office until 2019, this announcement will help to maintain stability in the financial markets"
It will also maintain government bond purchases at £435bn and corporate bond purchases at £10bn.
Although members were expected to support a further cut in Bank Rate at the November meeting, the committee says that that "the near-term outlook for activity is stronger than expected three months ago".
Indicators of activity and business sentiment have recovered from their lows immediately following the referendum and the preliminary estimate of GDP growth in Q3 was above expectations.
In its November Inflation Report, the Committee says that output growth is expected to be stronger in the near term but weaker than previously anticipated. This reflects uncertainty over future trading arrangements, and the risk that UK-based firms’ access to EU markets could be reduced, restraining business activity and supply growth.
Largely as a result of the depreciation of sterling, CPI inflation is expected to be higher throughout the three-year forecast period than in the Committee’s August projections. In the central projection, inflation rises from its current level of 1% to around 2.75% in 2018, before falling back gradually over 2019 to reach 2.5% in three years’ time. The MPC says inflation is likely to return to close to the target over the following year.
The Committee judged that attempting to offset inflation with tighter monetary policy would "be excessively costly in terms of foregone output and employment growth" but stressed that there are "limits to the extent to which above-target inflation can be tolerated".
Jeremy Duncombe, Director of Legal & General Mortgage Club, commented: "The Bank of England’s decision to keep the base rate at 0.25% will be welcomed by the industry. Together with Mark Carney's recent resolution to stay in office until 2019, this announcement will help to maintain stability in the financial markets as the negotiations to leave the EU get underway."
Richard Pike, Phoebus Software sales and marketing director, added: “With the Bank of England holding interest rates, and today's Brexit ruling adding yet more uncertainty, it is likely that rates will remain unchanged for some time to come, which is positive news for borrowers. If the MPC’s revised inflation and economic growth forecasts for the remainder of this year and 2017 come to fruition it may take pressure off the Bank to keep rates low.
“It will be interesting to see how quickly deposits rates are increased, and by how much, if the MPC decide to increase base rate should inflation goes above its 2% target, but the falling value of the pound is likely to play a part in any decision over the coming year.”
