Bank of England Holds Benchmark Rate at Historic Low in Wake of Brexit Vote

The Bank of England has held its benchmark interest rate at 0.50% and indicated that it may loosen monetary policy in August after voting to maintain the current asset purchase scheme at £375 billion ($500 billion).
Minutes from the central bank's monetary policy meeting, which was held on Wednesday, showed that members voted by a majority of 8-1 to maintain Bank Rate at 0.5%, with one member voting for a cut in Bank Rate to 0.25%.
The bank said that committee members had made initial assessments of the impact of Britain's vote to leave the European Union (EU) on demand, supply and the exchange rate. It said that most members "expect monetary policy to be loosened in August", assuming "the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis".
Details of "precise size and nature of any stimulatory measures" would be determined in August, the minutes added.
The minutes stated that financial markets had reacted sharply to the nation's vote to leave the European Union pointing out that since the committee's previous meeting, sterling effective exchange rate have fallen by 6%, and short-term and longer-term interest rates have declined.
The committee said that there are preliminary signs that the result has affected sentiment among households and companies, with "sharp falls in some measures of business and consumer confidence". Early indications from surveys and from contacts of the Bank's agents "suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions", the minutes added. Taken together with survey data pointing to a significant weakening in expected activity in the housing market, the minutes stated that "these indicators suggest economic activity is likely to weaken in the near term".
Twelve-month consumer price index inflation was 0.3% in May and remains well below the bank's 2% inflation target.
Thursday's sees interest rates remaining at their lowest level since the central bank was founded in 1694.
Prior to the financial crisis, in May 2007, rates surged to a six-year high of 5.5%. Two months later, Mervyn King, then governor of the Bank of England raised rates by a quarter of a percentage point citing the increase in inflation among risks facing Britain's economy. But in December, with rising mortgage rates in the UK and global financial crisis in full swing, the bank brought rates back to 5.5% and, over the subsequent 15 months, rates were cut lower and lower eventually hitting 0.5% in March 2009.
Britain's decision to leave the European Union (EU) is the first time that a member state has chosen to pull out of the world's largest trading bloc, for which Britain had been member for the past 43 years. The result preceded former premier David Cameron's immediate resignation and the appointment of his successor Theresa May as Britain's new Prime Minister as of Wednesday.
May has previously indicated that she will not invoke Article 50 - the legal process which kickstarts Britain's countdown to withdrawal from the EU - until the end of the year. Once Article 50 has been triggered, the country will have up to two years to negotiate new trade deals with member states before its membership will cease to be active.
*Copyright MT Newswires