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BoE holds interest rates as businesses cut back on investment ahead of Brexit

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BoE holds interest rates as businesses cut back on investment ahead of Brexit

The Bank of England’s (BoE) Monetary Policy Committee (MPC) has unanimously voted to maintain the UK interest rate at 0.75 per cent amid uncertainty about the potential nature and timing of the UK’s withdrawal from the European Union.

In a report published this week, the MPC said Brexit uncertainties “continue to weigh on confidence and short-term economic activity”, leading members to keep the rate on hold.

The committee added that the economic outlook will continue to depend “significantly” on the nature and timing of EU withdrawal. This includes how new trading arrangements between the EU and the UK will benefit businesses, whether the transition is abrupt or smooth, and ultimately, how households, businesses and financial markets respond.

Any future shifts in monetary policy, the MPC said, will depend on the balance of these effects on demand, supply and the exchange rate.

The BoE also revealed that investment may be between six and 14 per cent lower than what would have been the case had the British public not voted to leave the European Union in 2016. According to the Bank’s research, businesses have been particularly hesitant to make large investments in items such as machinery, equipment and commercial buildings.

It further warned that a short delay may see a “larger immediate reduction” in investment.

Commenting on the report, the Committee said: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.

“The MPC judges at this month’s meeting that the current stance of monetary policy is appropriate. The Committee will always act to achieve the 2 per cent inflation target.”

In November 2017, interest rates rose for the first time in more than a decade, from 0.25 to 0.5 per cent. The rate rose again in August 2018, to 0.75 per cent – the highest level since 2009.



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