Bank of England holds interest rate and warns of Brexit uncertainty damaging growth

Bank of England holds interest rate and warns of Brexit uncertainty damaging growth

The Bank warned that delaying of Brexit beyond 31 October risked uncertainty becoming more deeply “entrenched”, damaging growth prospectsThe Bank of England has decided to keep interest rates on hold and warned that continuing Brexit uncertainty could further damage the economy.

Members of the Bank’s Monetary Policy Committee voted unanimously to keep interest rates at their current level of 0.75%.

The Committee said that a no-deal Brexit could lead to inflation rising, a fall in the pound and a slow down in growth.

The meeting’s minutes said: “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.”

Policymakers say that interest rates could move up or down in the event of leaving the EU without a deal.

If there is a smooth Brexit, the Bank says it would expect to resume interest rate rises in order to meet the inflation target of 2%.

Howard Archer, chief economic advisor to the EY ITEM Club says: “A delaying of Brexit would seemingly make a Bank of England interest rate cut more likely – especially given its warnings of the potential damage from such an eventuality.”

The minutes revealed that the economy contracted by 0.2% between April to June. The Bank expects it to rise by 0.2% in the third quarter, weaker than the 0.3% forecast by the bank last month.

Prime Minister Boris Johnson insists Britain will leave the EU on 31 October, even if a deal has not been struck with the EU. However, Parliament has passed a law blocking the UK leaving the EU without a deal.

The Committee also noted that the trade war between the US and China had intensified, and the outlook for global growth has weakened.

The Bank has increased the base rate twice since November 2017 – from 0.25% to the current rate of 0.75%

Anthony Morrow, chief executive of financial adviser OpenMoney, says: “Keeping rates on hold merely delays the day when the base rate resumes its long-term downward trend.

“As savers adjust to this new normal of rock-bottom rates, they increasingly will need to think outside the box in search of better returns on their money.”

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