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MPC holds Bank Rate as Brexit uncertainty


The Bank of England's Monetary Policy Committee have voted unanimously to keep Bank Rate at 0.75%. The MPC said that Brexit uncertainties have "intensified considerably" since its last meeting, adding that the near-term outlook for global growth has softened and downside risks to growth have increased. 

The Committee says these uncertainties are now "weighing on UK financial markets". It highlighted that UK bank funding costs have risen sharply and UK-focused equity prices have fallen materially. Additionally, sterling has depreciated further, and its volatility has risen substantially. 

The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth. The MPC believes that a decline in oil prices means that UK CPI inflation is likely to fall below 2% in coming months. 

However it judges that the loosening of fiscal policy in the Budget will boost UK GDP by the end of the MPC’s forecast period by around 0.3%. Going forward, the Committee said that the economic outlook will "continue to depend significantly on the nature of EU withdrawal, in particular: the form of new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond".

The MPC says the path of monetary policy will depend on the balance of the effects on demand, supply and the exchange rate but "will not be automatic and could be in either direction"

Posted by MMB Finance Swindon on 25 December 2018