Bank of England votes unanimously to keep interest rates unchanged

The Bank of England voted unanimously to leave interest rates unchanged on Thursday, as widely expected by economists.

The Monetary Policy Committee voted 9-0 to keep interest rates at 0.25%, bond purchases at £435bn and corporate bond purchases at up to £10bn.

The pound rose 1.47% to $1.2485 at 1211 GMT on the Bank’s inaction.

In its policy statement, the Bank defended its economic outlook at the time of the August Inflation Report when it judged it was "appropriate" to cut interest rates from 0.50% and boost bond purchases from £375bn.

Economic activity was expected to weaken and unemployment to rise due to uncertainty following the Brexit vote. Inflation was expected to rise to a rate above the 2% target as the pound weakened against the dollar, making imports more expensive.

"In the three months since then, indicators of activity and business sentiment have recovered from their lows immediately following the referendum and the preliminary estimate of GDP growth in the third quarter was above expectations," the MPC said in a statement.

GDP rose 0.5% quarter-on-quarter in the three months to September, slowing from 0.7% in the quarter to June but beating forecasts for 0.3% growth, the Office for National Statistics revealed last Thursday.

“Given the stronger than expected GDP figures for Q3, it is not a surprise that the Bank has kept interest rates on hold. However, if the economy weakens in the coming quarters, a further cut to the base rate would be a real possibility," said Suren Thiru, head of economics at the British Chambers of Commerce.

“Monetary policy is close to the limits of its effectiveness. The government now needs to use this month’s Autumn Statement to help businesses continue to invest, grow and recruit during this period of heightened uncertainty.”

The central bank has been criticised for getting its forecasts wrong in the lead up to and in the aftermath of the UK’s vote to leave the European Union on 23 June. The Bank's political independence was called in question after Pro-Brexit campaigners argued that it deliberately provided gloomy forecasts to support the Remain campaign in the referendum.

In its latest Inflation Report, released alongside its policy announcement and meeting minutes on Thursday, the Bank revised its economic growth forecast to 2.2% this year, up from its prior 2.0% estimate.

Consumer price inflation is seen at 1.3% for the current year, up from the 1.2% calculation in the previous inflation report, with inflation now forecasts for 2017 and 2018 to be 2.7%, up from the prior 2.0% and 2.4% estimates.