Bank of England expected to keep interest rates on hold next week amid Brexit uncertainty


The Bank of England is expected to vote unanimously to keep interest rates on hold at 0.75 per cent on Thursday.

Earlier this week, interest-rate swap markets cut the chances of a quarter-point rate rise from Governor Mark Carney’s rate-setters this year to 52 per cent, down from 64 per cent previously.

While this spells good news for households with a mortgage, hard-pressed savers are still being punished with dismal returns, even though some banks and building societies are slowly raising interest rates in a bid to snap up new customers.

Looking ahead: The Bank of England's MPC, led by Mark Carney, is expected to keep interest rates on hold at 0.75% on Thursday

Looking ahead: The Bank of England's MPC, led by Mark Carney, is expected to keep interest rates on hold at 0.75% on Thursday

Looking ahead: The Bank of England’s MPC, led by Mark Carney, is expected to keep interest rates on hold at 0.75% on Thursday

Alongside its interest rate decision on Thursday, the Bank will also publish its quarterly set of economic forecasts, which will be watched closely for further signs of the damage inflicted by uncertainty surrounding Brexit.

In December, the Bank’s Monetary Policy Committee warned that Brexit uncertainty had ‘intensified considerably’.

At that stage, the Bank estimated that Britain’s economic growth was set to slow by more than previously expected to 0.2 per cent in the final three months of the year, down on 0.6 per cent seen in the heatwave-boosted third quarter.

Given the economic and political backdrop, George Brown, an analyst at Investec, thinks rates are set to remain firmly on hold for the time being.

Mr Brown said: ‘In the face of this Brexit ambiguity, we expect the MPC to judge that the best course of action at this juncture is to simply sit on the side-lines awaiting further clarity.’

Mr Brown expects the Bank may tweak its forecast inflation, however, to show a modest overshoot of the Government’s 2 per cent target over the next two years as it remains cautious over domestic pressures, such as wages.

This would come despite recent official figures showing inflation falling further in December, to 2.1 per cent, down from 2.3 per cent in November.

‘Consequently, our expectation is that the MPC will still continue to judge that further rate hikes are necessary,’, Mr Brown said. 

Investec is forecasting a rise in interest rates in May, depending on the outcome of Brexit, and by May 2020, expects the rate to have increased to 1.5 per cent.

When will interest rates rise? Investec is forecasting a rise in interest rates in May

When will interest rates rise? Investec is forecasting a rise in interest rates in May

When will interest rates rise? Investec is forecasting a rise in interest rates in May

Ongoing political wranglings are keeping the economy – and it’s analysts – firmly on their toes.

Prime Minister Theresa May faces an uphill struggle to gain concessions on the controversial Irish border backstop within two weeks, while a potential no-deal Brexit is still on the table following the defeat of two amendments by MPs earlier this week.  

In terms of how the economy is performing and responding to the political upheaval, Britain’s powerhouse services sector saw business activity rise at one of the slowest rates for two-and-a-half years in December, according to the latest purchasing managers index.

The survey suggested that concerns over Britain’s exit from the EU affected businesses’ spending plans toward the end of last year, while consumer demand was more subdued, subsequently hit sales.

Brexit drama: Uncertainty surrounding Brexit is affecting how many businesses and the economy operates 

Brexit drama: Uncertainty surrounding Brexit is affecting how many businesses and the economy operates 

Brexit drama: Uncertainty surrounding Brexit is affecting how many businesses and the economy operates 

Another PMI survey published this week revealed that UK manufacturers stockpiled raw materials at the fastest rate on record last month, as fears over post-Brexit trading mount.

According to the findings, output in the country’s manufacturing sector got off to a ‘lacklustre’ start in January, falling to its lowest level since July 2016. 

Within the sector, new orders slowed and employment levels fell for only the second time in the past two-and-a-half years.

The manufacturing PMI fell to 52.8 last month from 54.2 in December, which was a three-month low and the second weakest reading since July 2016. 

A reading of 50 or above indicates growth.

While the sector remains in growth mode, Rob Dobson, director at IHS Markit, has warned there is there is a ‘clear risk of manufacturing sliding into recession.’ 

Retail sales also dipped by 0.9 per cent in December after Black Friday brought spending forward to November, while there are also signs that sales stagnated last month.  



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