Bank of England Holds Interest Rates Steady Amid Brexit Uncertainty
The Bank of England left interest rates unchanged on Thursday, in what was a widely anticipated decision, and indicated that any more hikes will be at a gradual pace as it monitors developments with ongoing Brexit negotiations between the UK and the European Union.
"Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent," the bank said in its policy summary.
The UK monetary authority decided to lift rates to that level in August, its highest point since March 2009, because it felt the economy had recovered from its slowdown at the start of the year and noted that, despite still-slow growth in the UK economy, inflation was rising at a faster pace than its targeted rate.
The annual rate of inflation is currently running at 2.5%, slightly above the BoE’s target of 2% after falling back from its peak of 3.1% in November.
Brexit negotiations remain significant risk
Thursday’s decision to hold steady comes at a time of growing concerns over a lack of clarity on the terms under which the UK will exit the EU in March next year.
“The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal,” the BoE said in the minutes.
“Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the withdrawal process,” it added.
Sterling pared back losses after the decision, with GBP/USD at 1.3044 by 07:09 AM ET (11:09 AM GMT), compared to 1.3055 earlier, while EUR/GBP was at 0.8, from around 0.8911 ahead of the announcement.