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BoE expects interest rates to stay low for longer

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  • 19/09/2019
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BoE expects interest rates to stay low for longer
The Bank of England’s (BoE) Monetary Policy Committee (MPC) has unanimously decided to keep the interest rate at 0.75 per cent.

 

This follows the announcement from the Office of National Statistics which showed that inflation fell to 1.7 per cent in August, down from July’s 2.1 per cent – its lowest level since 2016.  

Inflation is expected to remain below the two percent target for the rest of the year. 

In its last meeting before the UK is set to leave the EU on 31 October, the MPC said as long as there was ongoing political uncertainty, “domestically generated inflationary pressures would be reduced”, resulting in continued low interest rates.

It said: “In the event of a no-deal Brexit, the exchange rate would probably fall, Consumer Prices Index (CPI) inflation rise and GDP growth slow. 

“The committee’s interest rate decisions would need to balance the upward pressure on inflation, from the likely fall in sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand.” 

However, it added that in the event of a “smooth Brexit”, interest rates would increase “at a gradual pace and to a limited extent” to return inflation to its target. 

 

Cautious approach 

Frances Haque, Santander UK chief economist, said: “The decision to hold rates was widely expected, given the outcome of Brexit is still hanging in the air. 

“Although the economic data published so far for the third quarter of this year suggests that a recession should be avoided, many of the fundamentals of growth such as business investment and productivity remain weak, with the MPC clearly sticking to its cautious approach.  

“Until there’s more clarity on the final Brexit outcome, it’s unlikely we’ll see a change in rates this year.” 

 

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