Interest rates unchanged in United Kingdom, confounding analysts' expectations

Mark Carney Minister Mc Kenna speak

Bank of England governor Mark Carney and Environment Minister Mc Kenna speak in Toronto on Friday

The Bank of England's Monetary Policy Committee (MPC) has surprised investors and economists by leaving interest rates on hold at 0.5%.

Mr Carney previously warned British families to prepare their finances for a three per cent rise in the coming years.

David Lamb, head of dealing at FEXCO Corporate Payments, said: "QE aside, interest rates are the Bank of England's biggest monetary policy weapon".

To that end, most members of the Committee expected monetary policy to be loosened in August.

The Bank has however indicated that most members feel a need for easing in August but the extent of easing only be determined after receiving the August inflation and growth report.

The Bank of England has defied predictions by keeping interest rates on hold once more, but signalled action next month to boost the economy after the Brexit vote.

The signs are that Britain will indeed proceed to exit the European Union, but the Bank of England seems to be taking a more optimistic position on this matter at least in the short term by leaving rates unchanged.

Sterling rose to a two-week high of $1.3480 on the news, while the global focused benchmark FTSE 100 trimmed some of its gains.

The committee suggested that the decision on cutting interest rates had been deferred rather than rejected, signalling a likely easing in August.

"All eyes are on China's economic data for the second quarter - if the numbers turn out to be weak, the yuan may depreciate beyond 6.7 per dollar", Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia, told Bloomberg News. They said activity in the United Kingdom housing market looks set to weaken significantly.

However, the quicker-than-expected appointment on Wednesday of Theresa May as Britain's new prime minister has helped settle nerves in financial markets.

The Bank said: "Early indications from surveys and from contacts of the Bank's agents have suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions".

However, the committee gave a further hint that rates may indeed be reduced at its meeting next month, which coincides with its quarterly Inflation Report. Sterling, and British and other benchmark bond yields rose after the decision, as stocks fell.

Chris Williamson, chief economist with financial data firm Markit, said the BoE had opted not to rush into "a knee-jerk reaction" to the Brexit vote.

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