LONDON (Reuters) – The Bank of England kept its stimulus programme unchanged on Thursday as it awaited the outcome of Britain’s trade deal talks with the European Union, and said it would tolerate temporarily higher inflation if sterling plunged after a no-deal Brexit.
The BoE left its bond-buying programme at 895 billion pounds ($1.2 trillion), having ramped it up by 150 billion pounds last month.
The British central bank also kept its benchmark interest rate at a historic low of 0.1%.
London and Brussels are still trying to avoid the shock of import tariffs on trade from Jan. 1.
The BoE said it was ready to accept inflation above its 2% target if a no-deal Brexit caused sterling to fall sharply.
“Compared with previous periods during which non-negotiated Brexit outcomes had been possible, the economy was starting from a weaker position with greater spare capacity, increasing the Committee’s tolerance for a temporary overshoot in inflation,” the BoE after a meeting of its Monetary Policy Committee.
“It would be important to ensure that medium-term inflation expectations remained well anchored.”
The BoE said it planned to keep the pace of its purchases of British government bonds broadly unchanged in early 2021, but reiterated it could move faster if markets returned to the kind of chaos seen in March as the COVID-19 pandemic swept the world.
(Reporting by David Milliken and Andy Bruce; writing by William Schomberg; editing by Michael Holden)
