Interest rate cut more likely due to Brexit uncertainty, says Bank.
Bank of England leaves rates on hold but signals that could change in near future.
Brexit uncertainty and the slowdown in global growth has weakened the economy and made an interest rate cut more likely, the Bank of England has said.
The central bank said interest rates would remain at 0.75% after a unanimous vote of the monetary policy committee (MPC) on Thursday, but it signalled that further Brexit uncertainty amid a US-China tariff war could warrant a rate cut in the near future.
Taking a tougher line on the impact of the UK’s decision to leave the EU than its previous analysis of the economy, the Bank said it feared that Brexituncertainty was in danger of becoming entrenched, leading to a weaker outlook.
In the minutes of its September meeting, the MPC said delays to an agreement on the UK’s trading relationship with the EU would harm consumer and business confidence.
This trend would be made worse by the trade war between China and the US, which has lowered the economic growth rates in both countries this year, the committee said.
There was a likelihood that global growth would remain weaker, reducing the UK’s exports and GDP growth in the coming months. “In such an eventuality, domestically generated inflationary pressures would be reduced,” the MPC said.
The warning came as the Bank said volatile financial markets and the stop-start nature of talks with Brussels over the last year had made Britain’s economic path difficult to read. The Bank said its reaction to a no-deal Brexit would still need to be judged after the event and could lead to a cut or an increase in rates.
David Lamb, a spokesperson for the currency dealer Fexco International Payments, said the Bank had given no-deal Brexit supporters some ammunition.
“For once the Bank of England governor has thrown them a bone – by suggesting that a further delay to Brexit would hurt the economy.
“While this is a million miles from an endorsement of a ‘no-deal’, it is a stark acknowledgment of the mounting cost to companies and workers of the seemingly never-ending uncertainty,” he said.
Central banks around the world have cut interest rates in recent months in response to slowing growth. Earlier this week the US Federal Reserve cut its target borrowing rate to a range of 1.75% to 2%. Last week the European Central Bank cut its already negative interest rate and restarted its bond-buying stimulus programme.
The UK’s consumer prices measure of inflation (CPI) tumbled in August to a near three-year low of 1.7%, down from 2.1% in the previous month, though it remained higher than the 1% rate in the eurozone.
Ian Stewart, chief economist at the accountants Deloitte, said: “The Bank of England is conspicuously standing back from a global shift to cheaper money and placing more weight on the strength of the UK jobs market and consumer spending.
“The pace of the slowdown in the euro area and the US has surprised policymakers and triggered rate cuts. In the UK, despite Brexit uncertainties and softening corporate activity, the Bank of England thinks policy is about right.”