Interest rates on hold as a no-deal Brexit is looming

BANK of England policymakers are set to keep interest rates on hold at 0.75 per cent 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 homebuyers put big spending decisions on hold.

Members of the Bank’s nine-strong Monetary Policy Committee (MPC) appear to be staying firmly in wait-and-see mode,

‘The Bank may keep coals in fire for February hike’

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 Brexit uncertainty, we expect policymakers to refrain from altering any aspects of its monetary policy toolkit.”

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.

He said: “We expect the minutes of the November meeting to signal that a rate hike is ‘live’ for February.

“The MPC may judge it necessary to insert stronger rate guidance to lift investors’ Brexit blinkers.”

But he stressed that the MPC may choose to push back any further increases if an orderly Brexit is still not assured by its next meeting, at which time the Bank will also publish its next set of inflation forecasts.

The latest economic indicators show the toll Brexit is already taking, with gross domestic product easing sharply to 0.4 per cent in the three months to October, against 0.6 per cent 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.