Brexit: interest rates could move up or down

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target and decide whether interest rates could move up or down.  The MPC statement says that “Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2% in 2019 Q2 and now expected to rise by 0.2% in Q3.

The Committee judges that underlying growth has slowed, but remains slightly positive, and that a degree of excess supply appears to have opened up within companies. Brexit uncertainties have continued to weigh on business investment, although consumption growth has remained resilient, supported by continued growth in real household income. The weaker global backdrop is weighing on exports.

The Government has announced a significant increase in departmental spending for 2020-21, which could raise GDP by around 0.4% over the MPC’s forecast period, all else equal.”
They go on to report:

“possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union. The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply.”

Brexit uncertainty means interest rates could move up or down

In the event of a no-deal Brexit then exchange rates will probably fall, GDP slow and inflation rise, suggest the Bank. Their monetary policy could, in such an event, be in either direction.

In the event of a smooth Brexit, and assuming some recovery in global growth, a significant margin of excess demand is likely to build in the medium term according to the Bank.

If that were to occur “the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target.”

The Bank of England’s Monetary Policy Committee next meet on the 7th November.  By this stage will we be any nearer to knowing the likely exit of Brexit we wonder and the likelyhood of whether interest rates could move up or down?  In the meantime you can read the full statement here.

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