Policymakers to keep hold on interest rates

Bank of England policymakers are set to keep interest rates on hold at 0.75% after recent turmoil in Westminster and as Brexit uncertainty reigns.

The last rates decision of 2018 comes as prospects of a Brexit deal remain highly uncertain, with the economy showing signs of stagnating as businesses, consumers and home-buyers put spending decisions on hold.

Members of the bank’s ninestrong Monetary Policy Committee (MPC) appear to be staying firmly in wait-and-see mode, with the outlook clouded by worries over a no-deal EU withdrawal.

Just weeks ago, the bank warned in its Brexit scenario analysis that Britain could be tipped into a recession worse than the financial crisis in the event of a no-deal disorderly Brexit.

Investec economist George Brown said given the prevailing clime, policymakers were likely to refrain from altering the rate.

But he said the bank may look to “keep some coals in the fire for a February hike” as inflation pressures build and amid the potential for an economic boost once there is clarity over a deal.

The latest economic indicators show the toll Brexit is already taking, with gross domestic product (GDP) easing sharply to 0.4% in the three months to October, against 0.6% in the third quarter.

November’s purchasing managers’ index reading also signalled the weakest expansion in the dominant services sector for two-and-a-half years.

However, this pales in comparison to the effects that a cliff-edge Brexit would have on the economy.

In the controversial documents requested by the Treasury Select Committee, the bank predicted that a worst-case scenario could see GDP fall by 8%, the pound plunge by as much as a quarter and house prices tumble 30%.

The Bank of England.