Bank of England keeps interest rate at 0.75%

Bloomberg  Bank of England  Flickr CC BY-ND 2.0

"It is this outlook for inflation, alongside our assumptions of a Brexit deal/transition arrangements being agreed, that leads us to conclude that the BoE will remain of the view that normalisation in policy (rather than further easing) will be the next step for the MPC", George Buckley, Nomura's chief United Kingdom & euro area economist, wrote in a note to clients.

Sterling and British government bond yields fell slightly after the policy statement, which potentially opens the door to a rate cut if Brexit uncertainty becomes chronic or the global economy takes a sharp downturn. "And even though the tone of the minutes was slightly more dovish than in August, we do not expect the MPC to follow in the footsteps of the Fed and the European Central Bank and loosen policy unless there is a no deal Brexit".

Admittedly, the perceived risk of "no deal" appears to have decreased over the past couple of weeks following Parliament's legislative efforts to force a further delay to the Brexit process.

There was a likelihood that global growth would remain weaker, reducing the UK's exports and GDP growth in coming months.

If Britain leaves without a deal, rates might need to move up or down, depending on the inflationary shock of any slump in sterling, the BOE said, though Governor Mark Carney has said he personally believes a rate cut is more likely to be needed.

"The fiscal risk is of course the currency risk associated with fiscal policy being seen to do much worse in South Africa", said Gina Schoeman, an economist at Citigroup South Africa.


The minutes are the strongest clue yet as to how policy makers are bracing for extensions to the Brexit deadline.

Analysts cite continued uncertainty around the outcome on Brexit as the main factor tying the Bank of England's hands on rates. Indeed, we think that the MPC would hold fire until the second half of next year.

The Bank of England in London, Britain. Johnson says he won't do that, further stoking uncertainty over Brexit.

The pound fell against both the euro (GBPEUR=X) and the dollar (GBPUSD=X) when the data was published, as investors bet the below-target reading meant the Bank of England was nearly guaranteed not to raise rates on Thursday.

"Bank of England inaction on interest rates would be in marked contrast to the loosening cycle in monetary policy increasingly being adopted by global central banks, the latest example being the substantial stimulus measures announce by the European Central Bank on 12 September. A cut in the interest rate would assist, especially since business confidence is at its lowest point in 20 years".

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