Bank leaves rates at record low of 0.1% as it awaits Brexit trade deal outcome

Bank of England policymakers have kept interest rates on hold and left the bond-buying programme unchanged as they await the outcome of the EU trade deal talks. 

All nine members of the Monetary Policy Committee voted to keep interest rates at their historic low of 0.1 per cent at today’s meeting. 

They warned the outlook for the economy is ‘unusually uncertain’ and depends on the evolution of the pandemic, related restrictions as well as the talks with the EU. 

On hold: The Bank of England has kept rates and quantitative easing unchanged

On hold: The Bank of England has kept rates and quantitative easing unchanged

On hold: The Bank of England has kept rates and quantitative easing unchanged 

The Bank did not mention negative rates, and left its bond-buying programme unchanged, after announcing the purchase of another £150billion of government bonds last month. 

The Bank has created £895billion of emergency cash through so-called quantitative easing since the last financial crisis, including £450billion so far this year following the outbreak of Covid-19.   

This involves the Bank ‘printing’ more digital money and using it to by buying assets such as government bonds from banks, which in turn are expected to pump those money into the economy by lending out to businesses and people.

‘The outlook for the economy remains unusually uncertain,’ the Bank said.

‘It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.’  

The Bank said the economy had been stronger than it expected in recent months.

It now forecast a less severe contraction of just over 1 per cent in the final quarter of the year, compared to a 2 per cent fall it predicted last month

Sterling: The pound has been rising recently, but a no-deal Brexit would see it plunge

Sterling: The pound has been rising recently, but a no-deal Brexit would see it plunge

Sterling: The pound has been rising recently, but a no-deal Brexit would see it plunge

The latest vaccine developments were also ‘likely to reduce the downside risks to the economic outlook’, the Bank said.

However, the rapid rise in coronavirus infections and the latest round of restrictions were stricter than it assumed in November, and would result in a bigger-than-expected economic hit in December and weigh on the first quarter of 2021.

It also warned over uncertainties posed by a no-deal Brexit, signalling that further monetary policy action could be on the way in the case of the UK and EU failing to strike a deal. 

‘The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit,’ it said. 

The MPC said that, in case of a no-deal, the pound would fall, while inflation would likely be higher and growth lower than previously assumed. 

Policymakers said they would ‘tolerate’ a temporary overshoot of the inflation target, in case of a no-deal.  

Bank of England Governor Andrew Bailey

Bank of England Governor Andrew Bailey

Bank of England Governor Andrew Bailey

The update from the Bank comes as the UK is in last-ditch talks with the European Union over a trade deal and new restrictions are being imposed ahead of Christmas to limit the spread of Covid.  

Laith Khalaf, financial analyst at AJ Bell, said: ‘The Bank of England won’t make its next move until it knows which way Brexit is heading. 

‘In the event of no-deal, it would likely be willing to look through the temporary jump in inflation as a result of weaker sterling and the imposition of tariffs, but it couldn’t turn a blind eye to the economic impact of a disorderly Brexit.

‘The Bank’s governor has said no deal would have a greater long-term economic effect than the pandemic, so we can expect further stimulus should Brexit talks fail, either in the form of more QE, or interest rate cuts.’  

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