LONDON: The Bank of England kept interest rates steady on Thursday, saying it was too soon to gauge how much Prime Minister Boris Johnson’s election victory would lift the Brexit uncertainty that has hung over the economy.
Two of the BoE’s nine policymakers voted for a second month in a row for a cut to borrowing costs due to fears the job market is deteriorating. But the majority of the Monetary Policy Committee took a wait-and-see approach. “There was no evidence yet about the extent to which policy uncertainties among companies and households had declined following recent domestic policy developments,” the BoE said in a statement.
After Johnson’s emphatic election win last week, Britain is on course to leave the European Union on Jan. 31 with a transition deal, which the BoE said could limit some of the immediate uncertainty hovering over businesses. But many companies are already looking to the end of 2020, when they will face tariffs on exports to the EU unless Johnson succeeds in negotiating a trade deal before then – or breaks his word and allows an extension to the transition period.
At this week’s BoE meeting, policymakers Michael Saunders and Jonathan Haskel once again voted to cut rates, saying the central bank need to move quickly to respond to signs that Britain’s robust job market was faltering. For the seven others, it was too soon to take action. Economic growth was expected to pick up in early 2020 thanks to the easing of Brexit uncertainty, higher spending by the government and a recovery in global economic growth, they said.
“If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation,” the statement said. But “further ahead”, the BoE said it might need to raise borrowing costs “at a gradual pace and to a limited extent” if those risks did not materialise and the economy grew as expected.
Last month the BoE forecast Britain’s economy would grow by just 1.2% next year, the weakest annual expansion since the global financial crisis. On Thursday it cut its forecast for quarterly growth in the final three months of 2019 to 0.1% from 0.2%. Inflation is below the BoE’s 2% target at 1.5%, but a handful of economists think the central bank could raise rates next year due to underlying pressures from a tight labour market and damage to productive capacity from Brexit. Most, though, think a rate cut is more likely and financial markets have been pricing in a roughly 50% chance of a single 25 basis-point rate cut before the end of 2020.
Source: Economic Times