Bank of England holds rates as it awaits Brexit developments
LONDON (AP) — The Bank of England has kept its main interest rate on hold at 0.75 percent as policymakers await developments in Britain’s looming exit from the European Union.
In a statement Thursday, the bank said its nine-member rate-setting panel voted unanimously to keep borrowing rates unchanged, a month after sanctioning a quarter-point increase.
The Monetary Policy Committee suggested that an “ongoing tightening” of monetary policy would be necessary in the future to return inflation “sustainably” to the bank’s 2 percent target. It currently stands at 2.5 percent.
It added, however, that Britain’s economic outlook “could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.”
Britain is due to leave the EU in March but there’s uncertainty about the prospects of a trade with the EU.
“Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the withdrawal process,” rate-setters said according to minutes of the meeting.
The bank’s forecasts for the British economy over the coming years have been based on the assumption that there will be a “smooth” adjustment to the country’s future trading relationship with the EU.
The EU, as a whole, remains Britain’s biggest export partner and the British economy relies heavily on money and workers from the bloc.
Failure to reach a deal on Brexit could seriously hobble the British economy — tariffs could be slapped on British exports, while cross-border payments may face additional charges.
Britain and the EU have been working toward securing a deal by October though that deadline appears to have shifted out by a month. Divisions both within the governing minority Conservative government and within the British Parliament as a whole have fueled the uncertainty.
Though the British economy did not fall into recession after the country voted to leave the EU in June 2016, as many economists predicted, growth has slowed partly, because businesses have turned cautious over investing in Britain without a clear understanding of the future trading relationship.
Earlier this week, the chief of Jaguar Land Rover warned that tens of thousands of jobs could be at risk in the event of no deal.