Interest rates expected to remain on hold
The Bank of England is expected to keep interest rates on hold at 0.75 per cent this week – but economists will be focusing on the tone of the minutes from the latest monetary policy committee (MPC) meeting.
Howard Archer, chief economic adviser to the EY Item Club, pointed out that a “fair amount has changed” since the previous MPC meeting in June.
“The main focus of attention is likely to be on whether the MPC maintain the view that interest rates will need to rise gradually and to a limited extent if the economy develops as expected,” said Archer, ahead of Thursday’s announcement.
“Increased belief that the Bank of England’s next move will be to cut interest rates rather than increase them is the consequence of a number of factors. These include the weakened performance of the UK economy in the second quarter, domestic political uncertainties, a slower and more uncertain global economic environment which is expected to see the Federal Reserve and [European Central Bank] shortly cut interest rates, and Brexit uncertainty.”
Archer believes that the Bank of England is likely to keep interest rates at 0.75 per cent throughout the rest of 2019 and well into 2020.
“This is on the assumption that the UK leaves the EU with a deal at the end of October, supporting a gradual pick-up in economic activity by diluting uncertainty.”
If Brexit is delayed again, he expects the Bank of England to hold off from hiking interest rates until further into next year.