By Canadian Press

Bank of England keeps main interest rate unchanged at 0.75%

Jan 30, 2020 | 4:42 AM

LONDON — The Bank of England on Thursday opted against cutting interest rates after a run of fairly firm economic data in the past week eased fears about a dramatic slowdown in the British economy.

The bank said in a statement that its Monetary Policy Committee voted 7-2 to keep the key U.K. interest rate unchanged at 0.75%. That’s the same composition as in the previous decision in December.

The decision, which comes a day before the U.K. leaves the European Union, marks the final time that Mark Carney will be at the helm at the bank. He leaves in March, to be replaced by former deputy governor Andrew Bailey.

Whether interest rates move in the coming months – up or down – will hinge on whether the recent upturn in the survey data, largely credited to the easing in Brexit uncertainty following the convincing election win of Boris Johnson’s Conservative Party in the December general election, translates into an improvement in the hard figures.

Most economists think the economy will have done well to eke out growth any higher than 1% last year, which would be the lowest yearly rate since the country emerged from recession a decade ago.

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If there’s no sign of an underlying improvement in the early months of this year, then interest rates could be cut soon, not least because inflation, at 1.3%, is running at its lowest annual rate since late 2016. However, if the survey data augurs a period of higher growth, then many economists think a rate hike could be in the offing sometime this year.

In the minutes accompanying the decision, the majority of rate-setters said U.K. growth is projected to pick up a tad in 2020, supported by a firming global economy, a further decline in Brexit uncertainties and expectations the British government will loosen the purse springs.

“Policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak,” said the majority who voted for no change.

According to the minutes, the two rate-setters who backed a cut to 0.5% thought that with growth weak and inflation low, “the economy had a modest but rising margin of spare capacity.” They also noted that the improvement in survey data has not provided a clear guide to real-world developments.

Brexit uncertainty has been largely to blame for Britain’s tepid growth in the years since the country voted to leave the EU in June 2016. Firms have been holding back investment amid fears that Britain would leave the EU without a divorce deal while consumers have become cautious. Some Brexit uncertainty remains as it’s still not clear what the economic relationship between Britain and the EU will look like beyond the end of this year.

After Britain officially leaves the EU on Friday, it goes into a so-called transition period through the end of the year during which time it will remain part of the EU’s tariff-free single market and customs union. Johnson has said that he won’t request an extension to that transition period and that 11 months represents ample time to secure a comprehensive new trade deal between Britain and the EU for goods and services.

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Follow AP’s full coverage of Brexit and British politics at: https://www.apnews.com/Brexit

Pan Pylas, The Associated Press