Yahoo Finance Bank of England holds interest rate at 0.75% as UK nears 'maximum uncertainty' on Brexit
The Bank of England held its headline interest rate unchanged at 0.75% as expected on Thursday and said its next move would depend on the final Brexit deal between the UK and EU.
The central bank published the results of its Monetary Policy Committee meeting on Thursday, which showed it unanimously voted to hold rates at 0.75%. This was widely expected by economists and investors. The bank also maintained quantitative easing at £435bn.
The MPC signalled in its meeting minutes that it’s next move could be either a rate cut or raise, depending on the shape of Brexit.
“The MPC judges that the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction,” according to the committee minutes.
Governor Mark Carney said in a press conference after the rate decision that the UK is near the point of “maximum uncertainty” on Brexit. The UK is to leave the European Union next March but a deal on the future relationship between the two countries has yet to be struck.
The MPC warned that it may be forced to raise interest rates in the event of a disorderly Brexit. This is unusual as the central bank would usually be expected to lower rates to encourage investment in the event of any economic shock. The bank said a rate rise may be necessary to control inflation if the supply of goods is seriously disrupted by a no-deal Brexit.
However, Carney stressed that a “no-deal, no-transition Brexit is not the most likely scenario.”
David Cheetham, chief market analyst at trading house XTB, said the bank is “clearly in wait-and-see mode until there is greater clarity on Brexit.”
The committee reiterated its promise that any future rate rises will be at “a gradual pace and to a limited extent.”
John Hawksworth, chief economist at PwC, said in an email: “If and when a deal on Brexit is agreed, however, the MPC is likely to resume raising rates next year unless there are other major adverse shocks to the economy.”
The MPC noted that household consumption has recently strengthened but business investment has weakened due to Brexit uncertainty. The MPC expects investment to pick up in the coming months as businesses get “greater clarity” on Brexit.
The Bank hiked the interest rate from its historic post-financial crisis low of 0.25% twice over the last year. The committee moved the rate to 0.75% in August. Bank governor Mark Carney said at the time that there would be “gradual” and “limited” rises to come in future but expressed reluctance to make any major moves due to ongoing uncertainty surrounding Brexit.
