BoE leaves rates unchanged as it spies signs of recovery

Governor Mark Carney's last meeting of the BoE's monetary policy committee left borrowing costs at 0.75%. The MPC's minutes said recent indicators showed global growth steadying and business confidence strengthening as uncertainty over Brexit receded.

UK growth is projected to pick up in early 2020 after slowing in 2019 and "the existing stance of monetary policy is appropriate", the minutes said. The pound rose 0.5% against the euro to €1.1885 and 0.65% versus the dollar to $1.3106.

Carney, whose term as governor ends in March, said immediate uncertainties in the UK had eased and surveys of business activity have improved. Investment intentions have recovered while housing market and consumer indicators have also improved, the MPC said.

But he said the MPC MPC would monitor closely whether early signs of improvement were borne out in hard data and was prepared to cut rates if growth did not materialise. The MPC reduced its estimate for the rate at which the economy could grow without overheating to 1.1% - less than half the rate targeted by Chancellor Sajid Javid.

"These are still early days, and it is less of a case of so far so good, than so far, good enough," Carney told a news conference. "It will be important for the hard data on activity to follow through on the recent pickup in the surveys, and for domestic price inflation to strengthen.

"Though the global economy looks to be recovering, caution is warranted. Evidence of a pickup in growth is not yet widespread. And any one of the known risks, such as a renewal of trade tensions, could reverse recent progress. The emerging threat from a new strain of coronavirus is a reminder of the need to be vigilant."

Economists were split over whether the committee would keep rates on hold or cut borrowing costs after political and economic uncertainty over Brexit helped cause the economy to stagnate at the end of 2019.

Some MPC members had appeared to prepare the ground for a rate cut in the runup to the meeting. But recent surveys have shown signs of revival in the economy after the Conservatives' resounding election victory ended short-term political turmoil over Brexit. The 7-2 vote was the same majority as at the MPC's December meeting.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The MPC’s decision is best characterised as a 'dovish hold', designed to keep market interest rates at current stimulatory levels and to preserve the option of cutting Bank Rate swiftly and without surprise, if the economy fails to rebound in Q1.

"Our view remains that the MPC likely will keep Bank Rate on hold throughout 2020 … though we see around a 30% chance of a cut in March."