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Bank Of England MPC Split 7-2 On Rate

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The Bank of England left its interest rate unchanged in a split vote as two members sought a rate cut as growth outlook weakens amid Brexit uncertainty and signaled that a rate hike is unlikely.

Seven members of the Monetary Policy Committee including Governor Mark Carney voted to maintain the bank rate at 0.75 percent, while Jonathan Haskel and Michael Saunders preferred a quarter-point reduction.

Haskel and Saunders said some extra stimulus was needed now to ensure a sustained return of inflation to the target.

Signaling policy easing, the monetary policy summary said, "If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation."

However, the bank said if risks do not materialize and the economy recovers as projected, then some moderate tightening at a gradual pace and a limited extent may be needed.

The committee unanimously decided to retain the stock of corporate bond purchases at GBP 10 billion and government bond purchases at GBP 435 billion. The committee judged that the existing stance of monetary policy is appropriate.

If Brexit is delayed, or a deal does little to assure businesses, a rate cut will be the next move, Andrew Wishart, an economist at Capital Economics, said.

James Smith, an ING economist said it is too early to be penciling in policy easing just yet as a lot depends on Brexit and new forecasts are not as dovish as expected.

Policymakers forecast economic growth to be roughly half that in 2018. In the new Monetary Policy Report, the bank forecast GDP forecast of 1.2 percent in 2020 and 1.8 percent in 2021, which was down from 2.3 percent.

The bank projected GDP growth to pick up from 1 percent in the fourth quarter of 2019 to 2.1 percent by the end of 2022. The level of GDP ends the forecast period around 1 percent lower than in August.

Over the remainder of the forecast period, demand growth is expected to outstrip the subdued pace of supply growth, which is restrained to some extent by the adjustment to new trading arrangements with the EU, the bank said.

Inflation which is currently below 2 percent is expected to decline to around 1.25 percent by the spring. Then inflation is forecast to rise gradually to a little above 2 percent target.

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