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UK interest rates on hold amid business uncertainty


Bank of England

The Bank of England has kept interest rates on hold amid growing uncertainty amongst businesses over Brexit.

The Bank’s Monetary Policy Committee (MPC) voted 9-0 to leave rates unchanged at 0.75%.

The financial markets are indicating that rates will not rise until after the UK leaves the EU next March.

The Bank has detected rising uncertainty among businesses over the last three months, which is curtailing their investments.

“The key risk to near-term growth is the extent to which uncertainty about Brexit affects spending as negotiations with the EU continue,” the Bank of England said in its Quarterly Inflation Report.

The Bank’s quarterly survey of business leaders indicated that Brexit had become a more important source of uncertainty for them in recent months.

As a result, the Bank has slashed its forecast for the growth in business investment this year to 0%.

However, the Bank expects consumer spending to grow “modestly” as wage growth has been accelerating.

The most recent official data showed that wages, excluding bonuses, are growing at the fastest rate in almost 10 years.

That’s helping support economic growth. For the three months to the end of August, the economy grew by 0.7%, the fastest pace of growth since February 2017.

The Bank is forecasting growth of 1.3% this year and 1.7% next year.

No-deal warning

However, those forecasts are based on a smooth transition for the UK out of the European Union.

In its latest Quarterly Inflation Report, the Bank warns that “an abrupt and disorderly withdrawal could result in delays at borders, disruptions to supply chains, and more rapid and costly shifts in patterns of production, severely impairing the productive capacity of UK business”.

The Bank is tasked with keeping inflation at 2%. To do that it monitors the strength of the economy and indicators of inflation, such as wage growth, and adjusts interest rates in response.

Interest rates were last raised in August as the Bank reacted to stronger data on the economy.

The latest decision to keep rates on hold will come as relief to the 3.5 million holders of mortgages that track interest rates, but savers will be disappointed.

Ruth Gregory, UK economist at Capital Economics, said that the MPC had kept rates on hold while the Brexit negotiations remained at an “impasse”.

She believes that if the UK strikes a deal soon rates could rise three times in 2019.

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