DESPITE wide expectations of a cut in interest rates last week, the Bank of England’s Monetary Policy Committee (MPC) voted eight to one in favour of leaving interest rates on hold, writes Jeffrey Ball.

Three weeks of political and economic upheaval and uncertainty had pushed up expectations of a change, the first since March 2009, but in the end the MPC played it safe.

The decision was made in a climate where we still don’t know what impact Brexit will have on the UK economy.

Mark Carney, Bank governor, has made it quite clear, both before and since the referendum, that he believes the impact will be negative.

Less clear is how big the impact will be.

So far we have seen:

1) A fall in the pound.

On the one hand this makes UK exports cheaper, on the other hand it makes the cost of UK imports higher.

That means exports should grow relative to imports, which adds to UK economic growth. However, because the UK imports more than it exports the net impact is likely to be a reduction in economic growth.

2) A modest tapering of consumer confidence and a weaker trend of retail sales leading up to the referendum.

Since the vote, the few data points that do exist have suggested a substantial knock to confidence.

This was reflected in John Lewis’ weekly sales numbers as well as a sharp decline in the weekly YouGov consumer confidence survey.

It will be mid-August before we have an impression of how consumers have felt during the month of July.

3) A reduction in investment in advance of the referendum.

This became more pronounced as the vote loomed and it seems hard to imagine that trend has not continued.

To many companies, membership of the single market will have represented an opportunity to trade.

Potential sanctions represent a risk.

It is rare for the MPC to make a bold policy move a month before the Bank of England’s Inflation Report comes out.

To do so looks alarmist.

The fact the referendum result, and the uncertainty it has caused, are unprecedented could prompt the MPC to want to play it safe by seeming over accommodative, but it is equally reasonable to hope that the shock factor may fade.

A knee jerk reaction is risky.

Perhaps the most important reason for leaving rates on hold is that the actual benefit of cutting rates is hard to clarify.

Consumer lending rates are unlikely to fall in response to a cut now.

In fact, there reaches a point at which a cut in the policy interest rate might perversely result in a rise in consumer lending rates.

This is because banks have lots of cash on which they would earn less interest.

In order to try and stabilise their profitability they may need to charge higher rates on money they lend.

There are other channels through which low interest rates help the economy - they encourage companies to invest, they make equity markets relatively more attractive - but unless there is demand, the incentive is likely to fall on deaf wallets.

However, there was a hint that there could be more stimulus to come, which could include a rate cut, as early as next month.

The statement accompanying the rate announcement said: “The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon.

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

Therefore, we can expect some more stimulus over the coming months from both the government and the Bank of England.

However, in each case, the size of that stimulus remains in doubt.

Jeffrey Ball is a chartered wealth manager at Brewin Dolphin, in Newcastle.

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin. No director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.