Bank holds rates at 0.75%, but warns of ‘either direction’ response to Brexit

Bank of England

The Bank of England has left interest rates unchanged at 0.75%, but stressed it was poised to respond “in either direction” as it awaits the outcome of Brexit talks.

Members of the Bank’s nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates on hold after August’s quarter-point hike and as it remains in wait-and-see mode amid Brexit uncertainty.

In its quarterly inflation report published alongside the rates decision, the Bank sketched out how it could respond to various Brexit scenarios, signalling that it could even be forced to raise rates should a disorderly exit send the pound tumbling.

“The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction,” warned the Bank.

Its report revealed the toll Brexit is taking on the country, with business investment now predicted to have screeched to a complete halt overall this year as uncertainty wreaks havoc on company spending decisions.

Consumer spending has been helping prop up the economy, with a summer heatwave shopping spree set to see growth accelerate to 0.6% in the third quarter, up from 0.4% in the previous three months, according to the Bank.

But this is likely to have been only a temporary boost, and the Bank expects growth to pare back to 0.3% in the fourth quarter before steadying at 0.4% thereafter.

This saw the Bank trim its forecast for growth overall in 2018, to 1.3% from 1.4% predicted in August, while it also nudged its 2019 outlook down to 1.7% from 1.8%.

Its forecasts are based on a “smooth” exit from the EU, with financial markets pencilling in around one rate rise a year for the next three years.

However, the Bank admits the economic outlook will “depend significantly on the nature of EU withdrawal”.

It offered a glimmer of hope for worried businesses, as it said policymakers saw greater clarity on Brexit emerging “in the relatively near term”.

The report comes as Brexit Secretary Dominic Raab has been playing down suggestions that a tentative date of November 21 has been set for a Brexit deal to be agreed.

Reports on Thursday also suggest that Prime Minister Theresa May has made significant in-roads into securing an agreement for financial services firms to operate across the EU after March 29.

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