The bank slashed its forecast for growth in the fourth quarter to just 0.1 per cent, having previously expected growth of 0.2 per cent, as Brexit uncertainty continues to hamper activity.
Officials said that following prime minister Boris Johnson’s decisive election victory and expectations that a Brexit deal may now be ratified before the 31 January deadline, “it was possible that household and business sentiment could pick up in the near term”.
Global growth was also showing “tentative” signs of stabilising, they said.
But the bank added: “If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation.”
Minutes of the bank’s latest decision revealed the Monetary Policy Committee (MPC) voted 7-2 to keep rates unchanged – with Jonathan Haskel and Michael Saunders repeating their calls for a cut to 0.5 per cent.
The rates verdict comes as a scandal emerges over the hacking of the bank’s audio feed of press conferences after it emerged that hedge funds could have profited by listening in seconds ahead of rivals.
The bank admitted a back-up communications system it installed a few years ago had been tapped and shared with a market news service, which had allegedly sold access to allow hedge funds to gain advantage over competitors by accessing comments ahead of the broadcast feed.
The bank said the two MPC members who voted for a cut felt that “with limited space to cut bank rate, risk management considerations favoured a prompt response to downside risks at present in order to ensure a sustained return of inflation to the target”.
They felt that a rate reduction was needed, given that growth was weaker than expected, while inflation – at 1.5 per cent in November – was subdued and employment growth was slowing.
But the majority of the committee said they believed growth would rise above potential next spring, assuming a Brexit deal is passed.
The bank said that if growth recovers as predicted, rates may need to be hiked “at a gradual pace and to a limited extent”.
It stressed that it was too early to judge the impact on the economy of the election result in the UK and recent signs of an easing to the US-China trade war.
The dissenters among the policymakers also voted for a cut last month in the first split decision on the MPC for more than a year.
The decision comes as recent official figures revealed the economy stagnated in October as Brexit and political uncertainty has hampered activity, with more recent surveys confirming a worsening picture for growth.
Since then, the Conservatives’ triumph at the 12 December election has helped remove some of the clouds of political uncertainty and concerns over another Brexit deadline extension.
However, fears over a no-deal Brexit remain at the fore with Mr Johnson legislating to prevent MPs from extending the Brexit transition period beyond the end of 2020.
Meanwhile, as the MPC meets to decide on its verdict, speculation is swirling over an imminent appointment to replace outgoing bank governor Mark Carney.
Dame Minouche Shafik – a former deputy governor at the bank and current director at the London School of Economics – has reportedly emerged as a leading favourite for the post, which could being announced within days, ahead of Mr Carney’s departure on January 31.