Bank Rate held at 0.75% as Brexit uncertainty intensifies
The Bank of England’s Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.75%.
Much of the MPC’s minutes focused on increased Brexit uncertainty, with the Committee noting that “entrenched Brexit uncertainties and slower global growth have led to the re-emergence of a margin of excess supply”.
The Committee said Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2% in Q2 and now expected to rise by 0.2% in Q3. The Committee judges that underlying growth has slowed, but remains slightly positive, and that a degree of excess supply appears to have opened up within companies.
The Committee says that in the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow.
The minutes said: “Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate response of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the sterling exchange rate.
“It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union. The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply.”
The MPC also noted that monetary policy has been loosened in many major economies as global growth slows.
Frances Haque, chief economist at Santander, commented: “The decision to hold rates was widely expected, given the outcome of Brexit is still hanging in the air.
“Although the economic data published so far for the third quarter of this year suggests that a recession should be avoided, many of the fundamentals of growth such as business investment and productivity remain weak, with the MPC clearly sticking to its cautious approach.
“Until there’s more clarity on the final Brexit outcome, it’s unlikely we’ll see a change in rates this year.”
Source: Financial Reporter