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Brexit could spur interest rate hikes after holding rates at 0.75%

The UK headline interest rate is maintained as expected at 0.75% by the Bank of England. The bank projected interest rates to rise at a faster pace if the country’s exit from the European Union or Brexit happened smoothly.

The bank has confirmed that the next move could be either a rate cut or a hike as it depends majorly on the Brexit deal. Britain is going to leave the European Union next March while the future relationship deal is yet to be struck between the two countries.

The Bank of England published the Monetary Policy Committee meeting results on Thursday that maintained the rates. The bank also maintained the quantitative easing of 435 billion British Pounds. The bank said few companies were stagnated from investing due to the Brexit uncertainty. A smooth Brexit could see a rebound in investment.

The central bank expects growth of 1.3% this year and 1.7% next year as Brexit has become an important uncertainty in the recent months. Due to Brexit, the bank has lowered its estimates for growth in business investment to 0% this year.

Bank of England governor Mark Carney to stay until 2020

In the event of a disorderly Brexit, the committee would be forced to lift the interest rates. A no-deal Brexit could severely disrupt the supply of goods; hence a hike in rates remained crucial for controlling the inflation. This is strange as the bank would mostly be predicted to reduce rates to assist in investment in the case of any economic shock.

However, this remained a not most probable scenario. The committee reiterated that any future rate hikes will be at a steady pace and to a limited extent. The central bank has raised the rates twice over the last year from its historic post-financial low of 0.25% and moved the rate to 0.75% in August.

Majority of the economists believe that the rates could hike three times in 2019 if Britain strikes a deal soon as the bank is expected to be even more aggressive on interest rates. Two rates hikes next year remained a good bet, Pantheon Macroeconomics’ economist Samuel Tombs told the BBC.

 

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