Interest rate held
Bank ‘ready to intervene’ if Brexit talks fail
Bank of England: monitoring risks (pic: Terry Murden)
The Bank of England’s monetary policy committee voted unanimously to leave the interest rate unchanged at 0.1%, but said it stood ready to intervene in the event of a No Deal Brexit.
It said that leaving the EU without a trade agreement would have a greater longer term impact on the economy. The arrival of vaccines to tackle the Covid pandemic reduces risks, it said.
The decision on the bank rate came as the Chancellor said he would deliver his delayed Budget on 3 March.
Rishi Sunak will set out the next phase of the plan to tackle the coronavirus and protect jobs and will be published alongside the latest forecasts from the Office for Budget Responsibility (OBR).
The Bank, meanwhile, expanded its quantitative easing (QE) programme – which is designed to inject money into the economy and boost lending – by £150bn in November.
The MPC said that if the outlook for inflation weakens, it will “take whatever additional action is necessary”.
It added that it “does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”.
Frances Haque, chief economist at Santander, said the continuation of talks on a trade deal with the EU meant the decision was expected.
“However, should trade talks end without a deal, the Bank of England stands ready to intervene with support likely to be in the form of a combination of measures designed to support financial markets and the UK economy.”
Laith Khalaf, financial analyst, 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.”