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Bank of England set to hold fire ahead of Brexit resolution

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2-min read
A woman cycles past the Bank of England and the Royal Exchange in the City of London.
A woman cycles past the Bank of England and the Royal Exchange in the City of London. Photo: PA

The Bank of England is expected to leave its monetary policy unchanged when policymakers meet this week, even as the rising risk of a no deal Brexit puts pressure on the central bank to act.

Economists expect the nine-person Monetary Policy Committee (MPC) to maintain the UK’s interest rate at 0.1% and keep the central bank’s programme of quantitative easing at £895bn ($1.2tn), following a £150bn expansion last month.

“We expect little news from this week's Bank of England (BoE) policy meeting and a unanimous vote to keep policy on hold,” economists at Bank of America said in a note this week.

Watch: Will Interest rates stay low forever?

READ MORE: Bank of England ready to act if Brexit sparks market chaos

While no fireworks are expected, economists believe the central bank may bounce into action early next year if Britain ends its Brexit transition period on 1 January with no trade deal.

“Brexit news remains the potential near-term catalyst for a change at the BoE,” Bank of America said.

“If markets become jittery, the BoE could increase the QE purchase pace at short notice. We would expect rate cuts into negative territory in a no-deal scenario, but that would need to wait until February we suspect.”

Bank of England governor Andrew Bailey said last week Threadneedle Street wouldn’t hesitate to intervene in markets if they become disorderly around the Brexit transition date. He pointed to the central bank’s actions in March, when it deployed £200bn to help calm gilt and sterling markets.

READ MORE: Bank of England's Bailey denies backsliding on climate crisis

Analysts think the pound could fall as much as 7% against the dollar if trade talks end in no deal. Such a fall would reflect the UK’s worse economic prospects. The Office for Budget Responsibility has said an “Australia-style” trading arrangement, as Boris Johnson calls it, would knock 2% off UK GDP next year. Bailey has said the long-term impact of no deal would be worse than the scarring from COVID-19.

The chances of no deal have been seen as rising in recent days. UK Prime Minister Boris Johnson told his cabinet on Tuesday that no deal was the “most likely outcome”.

The Bank of England Monetary Policy Committee’s latest policy decisions will be published at 12pm UK time on Thursday 17 December.

Watch: Why can’t governments just print more money?