Interest rates set for freeze as Brexit uncertainties bite

● Bank’s policymakers debate next move amid clouded outlook for UK economy

Bankofenglandpolicymakers look set to keep interest rates at 0.75 per cent this week after the recent political turmoil in Westminster and as Brexit uncertainty rumbles on.

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-buyersputbigspending decisions on hold.

Members of the central bank’s nine-strong 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.

Howard Archer, chief economic adviser to the EY Item Club think-tank, said: “It is likely to be a quiet end to the year on the monetary policy front with the Bank of England almost certain to keep interest rates at 0.75 per cent on Thursday.

“It will also be a major surprise if there was anything other than a unanimous 9-0 vote withinthempcforunchanged interest rates – as there was at the last meeting in earlynovember.

“With heightened Brexit uncertainties currently dominating the outlook for the economy, the Bank of England looks to be firmly in ‘wait-andsee mode’.

“Even if the UK does leave the EU with a deal, the Bank may well delay hiking interest rates to see how the economy is performing in the aftermath of the UK’S departure.”

Investec economist George Brown noted: “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.

Brown added: “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, when 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 (GDP) easing 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.

However, this pales in comparison to the effects that a cliff-edge Brexit would have on the economy, according to the Bank’s recent analysis.