The Bank of England left its key interest rate at a record lowand signaled it's readying stimulus for August as the economy reelsfrom Britain's decision to quit the European Union.

The nine-member Monetary Policy Committee, led by Governor MarkCarney, voted 8-1 to keep the benchmark at 0.5 percent, with onlyGertjan Vlieghe saying the outlook justified an immediatereduction. The decision is likely to shock investors, who hadpriced in more than an 80 percent chance the rate would be lowered.While policy makers discussed what measures could help the economy,they stopped short of detailing what those might be.

“Most members of the committee expect monetary policy to beloosened in August,” officials said, according to the minutes oftheir July 13 meeting. “The committee discussed various easingoptions and combinations thereof. The exact extent of anyadditional stimulus measures will be based on the committee'supdated forecast, and their composition will take account of anyinteractions with the financial system.”

The central bank is due to publish its quarterly InflationReport on Aug. 4, which will include new forecasts for growth andinflation and the MPC's first full take on how the referendumoutcome is set to affect the U.K. Initial reports suggestedeconomic activity was likely to weaken in the near-term, theminutes said.

With Britain preparing to navigate a split from its biggesttrading partner and Carney saying easing was likely to be neededover the summer, 31 of 54 economists in a Bloomberg survey hadpredicted pre-emptive action. The governor has taken aproactive approach since the referendum, offering additionalliquidity operations and relaxing bank rules to encouragelending.

The pound strengthened 1.3 percent to $1.3321 as of 12:15 p.m.London time.

The MPC “had taken some reassurance” from the fact that marketscontinued to function effectively in the post-Brexit period, sayingthey dampened, rather than amplified, the impact of the vote. Thesharp drop in the pound will also likely put upward pressure oninflation in the short term, the minutes said.

“If you want to calibrate policy to address a situation whichyou know is going to be weaker, you really need some evidence andforecasts to support that and that's what they're waiting for,”George Buckley, an economist at Deutsche Bank AG in London, said ina telephone call after the announcement. “It gives them time todigest some of the softer news that we will inevitably see in thecoming weeks. They had no real evidence on which to base a cut yet.It's a much better idea to wait.”

Initial reports signal the outlook has deteriorated, withretailers reporting their worst June in a decade and a gauge ofconsumer confidence plunging the most in 21 years.

For Vlieghe, “the subdued economic outlook before the referendumhad already come close to warranting further stimulus,” the minutesshowed. “The early evidence supported the view that demand waslikely to weaken further.”

Bloomberg News

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