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Bank of England holds interest rates at 0.75% amid Brexit chaos

The Guardian logo The Guardian 21/03/2019 Richard Partington Economics correspondent
© PA Wire/PA Images

The Bank of England has warned that continuing Brexit uncertainty and the prospect of further delay until the summer is serving as a handbrake on the economy, as it left interest rates on hold.

© Thomson Reuters Amid signs that the political turmoil is increasingly taking its toll on business investment decisions, paving the way for weaker economic growth in future, the Bank’s nine-member monetary policy committee (MPC) voted unanimously to leave interest rates at 0.75%.

It said there were increasing risks for the economy emerging with parliament at an impasse, while warning that further delay would continue the damage to the economy for longer.

© PA Wire/PA Images The MPC said there was the “possibility of further cliff-edge uncertainties that could have a significant effect on spending as any new deadline approached,” in a comment that comes hours after Theresa May said she would seek an extension in the Article 50 process until the summer.

Threadneedle Street said that more companies were stockpiling goods and had put off their investment plans amid lingering Brexit uncertainties, estimating that business investment in the British economy was as much as 14% below where it would have been without Brexit.

© Thomson Reuters Although it found increasing numbers of companies said they were ready for a no-deal, no-transition Brexit, up from 50% in January to 80% last month, it said many were unclear about what exactly they needed to plan for.

“Many of those companies had also reported that there were limits to the degree of readiness that was feasible in the face of the range of possible outcomes.”

It added that the cumulative effect of business uncertainties on investment spending appeared to have increased recently. More companies have become concerned about Brexit, with around 60% of firms in February telling its network of agents across the country they were worried, up from 40% immediately following the referendum almost three years ago.

As many as 20% of companies in a panel of key decision makers surveyed by the Bank thought that Brexit uncertainty would persist to 2021 or beyond.

Despite the impact on business investment from Brexit, economic growth has been stronger than expected in recent months. Unemployment has dropped to the lowest levels since the mid-1970s and wage growth has accelerated at the fastest pace in a decade.

The Bank said that for these reasons, should Brexit pass smoothly, it would need to raise interest rates in future. However, it also warned that failure to reach a deal could mean an emergency interest rate cut, or higher borrowing costs to fend off higher levels of inflation.

The MPC added: “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal.”

Gallery: Brexit timeline: Charting Britain's turbulent exodus from Europe (Deutsche Welle)


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