Bank keeps rates on hold

THE Bank of England yesterday kept interest rates unchanged and cut its growth forecast as it warned Brexit uncertainty had “intensified considerably” over the past month.

Its nine-member Monetary Policy Committee voted unanimously to hold the base rate at 0.75 per cent, while downgrading expectations for economic growth in the fourth quarter from 0.3 per cent to 0.2 per cent.

This follows growth of 0.6 per cent over the previous three months. It also expects slower economic growth to continue into 2019.

The bank last raised interest rates in August, for only the second time since the financial crisis a decade ago, but is wary about further hikes until it sees greater clarity over Britain’s departure from the European Union.

It said: “Brexit uncertainties have intensified considerably since the committee’s last meeting. These are weighing on UK financial markets.

“UK bank funding costs have risen sharply and by more than in other advanced economies.

“The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth. Business investment has fallen for the past three-quarters and is likely to remain weak in the hear term. The housing market has remained subdued.”

The MPC also suggested inflation would fall well below expectations to about 1.75 per cent in January, due to a drop in oil prices, and remain below its 2 per cent target for a few months.

Tom Stevenson, of Fidelity International, said the Bank was right to put monetary tightening on hold.

He said: “It would be surprising if interest rates rose by more than one quarter point increase in 2019 and the rate of tightening will most likely remain slow and steady throughout 2020 too.”

ITEM Club chief economic adviser Howard Archer said: “The MPC is clearly in ‘wait and see’ mode.

“On the assumption that the UK and EU enact a transition arrangement in March and the UK economy holds up following its exit, we believe the [Bank] could raise rates to 1 per cent in May.

“But it is entirely possible it could hold off hiking rates until August.”