Interest rates held as Brexit puts brakes on growth

THE BANK of England has kept interest rates on hold at 0.75 per cent as it cautioned “intensified” Brexit uncertainties were slamming the brakes on UK growth.

Policymakers on the Bank’s nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates unchanged in its last decision of 2018.

The Bank said no-deal Brexit fears had “intensified considerably” since its last meeting and these were hitting financial markets, bank funding costs and the pound, as well as the wider economy.

The Bank warned that internal estimates suggested UK growth was set to slow by more than previously expected to 0.2 per cent in the final three months of the year, down on 0.6 per cent seen in the heatwave-boosted third quarter.

It added growth was likely to remain around that level in the first three months of 2019.

This was worse than first feared by the Bank, which said in November that growth was likely to slow to 0.3 per cent in the fourth quarter and recover to around 0.4 per cent thereafter.

In minutes of the rates meeting, the Bank said: “The further intensification of Brexit uncertainties, coupled with the slowing global economy has also weighed on the outlook for UK growth.

“Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term.”

The housing market has remained subdued and retail spending was showing signs of slowing, the Bank said.

But the Bank said it had looked to separate the “shorter-term developments” from the dynamics of the economy.

It reiterated that, assuming the economy grew in line with forecasts and assuming an orderly Brexit, rates would likely need to rise by a “gradual pace and to a limited extent” to bring inflation – currently running at 2.3 per cent – back to target.

It also stands ready to respond to the fallout from Brexit, warning once more than rates could go “in either direction” even in a cliff-edge withdrawal.