Business

Bank holds interest rates amid Brexit uncertainty

The Bank of England has held interest rates at 0.75 per cent
The Bank of England has held interest rates at 0.75 per cent The Bank of England has held interest rates at 0.75 per cent

THE Bank of England has held interest rates at 0.75 per cent once more with Brexit uncertainty reaching its peak as Prime Minister Theresa May battles to secure a delay.

Members of the Bank's nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates unchanged.

In minutes of the latest decision, the Bank warned that a short Brexit delay could see business investment pull back even further until a deal is secured.

A short delay may see a "larger immediate reduction", while firms sit tight and wait for a resolution on the Withdrawal Agreement.

A longer delay, however, may see less of an impact as firms "judge it too costly to wait for any resolution to become apparent", according to the Bank.

"There was also the possibility of further cliff-edge uncertainties that could have a significant effect on spending as any new deadline approached," it warned.

There was however, some cheer for the economy as the Bank noted a "modest" rebound in consumer spending that is helping to offset the ongoing pressure from falling business investment.

The Bank also improved its economic outlook slightly, forecasting growth to edge up to 0.3 per cent in the first quarter of 2019, from 0.2 per cent in the final three months of 2018, thanks to more robust household spending.

The Bank's rates decision comes as Mrs May negotiates with the EU to delay Article 50 to June 30, with just seven days to go until the original March 29 withdrawal date.

It is widely expected to hold rates for some time until greater clarity over the EU withdrawal deal emerges.

The Bank reiterated that its response to any no-deal scenario would not be automatic and that rates could go in "either direction".

In a welcome sign that businesses are preparing themselves against any potential shock, the Bank said its latest survey suggested around 80 per cent of firms judged themselves ready for a cliff-edge exit, up from just 50 per cent in the January poll.

It added that there were further signs of stock-building, though this is not expected to have a large impact on gross domestic product (GDP).

Mike Jakeman, senior economist at PwC, said: "As there are still a number of potential outcomes to the Brexit process, the Bank is keeping all options on the table, pledging that its next move could be in either direction.

"However, its base assumption remains that a disorderly Brexit will be avoided and that in this outcome the economy will require a gradual tightening of monetary policy as slack gradually disappears.

"We concur and expect the Bank to raise interest rates once in the second half of the year, if a no-deal Brexit is avoided."