Rates set to remain unchanged in final MPC meeting before Brexit deadline
Bank of England policymakers are set to leave interest rates unchanged at 0.75% on Thursday in their final monetary policy meeting before the UK is due to leave the EU on October 31.
The Monetary Policy Committee (MPC) decision at noon comes amid mounting political chaos over Brexit and no further clarity over the outcome by the deadline next month.
It also comes as reports suggest Bank governor Mark Carney could be asked to extend his term once more in the event of Brexit being delayed.
The Treasury Select Committee has now written to Chancellor Sajid Javid asking for an update on the timetable for naming Mr Carney’s successor, given that it had previously said it would make the appointment in the autumn.
Mr Carney, who is due to step down on January 31, recently refused to give a direct answer when asked by the committee if he would extend his tenure, saying it was a “decision for the Government in terms of appointing a successor and the timing of that”.
The rates announcement also follows some brighter news on the UK economy after official figures showed gross domestic product (GDP) grew by a better-than-expected 0.3% month-on-month in July.
This raised hopes that the economy will return to growth in the third quarter after a 0.2% contraction in the previous three months, which would mean the UK avoids slumping into a technical recession.
Economists said the MPC would likely want to sit tight once more at this month’s meeting until there is further clarity over what will happen with Brexit on October 31.
Howard Archer, chief economic adviser to the EY Item Club, said: “We expect interest rates to be kept at 0.75% with the MPC firmly in ‘wait and see’ mode.
“Current heightened domestic UK political uncertainties reinforce the case for the Bank of England maintaining a watching brief.”
The rate-setters will have much to discuss, however, given the various options still on the table for Brexit.
They will also have to consider the underlying state of the UK economy, given that the monthly statistics from the Office for National Statistics only go up until July – before the latest political uncertainty and a series of closely-watched data showed the economy slowing.
The latest IHS Markit / CIPS UK services PMI rounded off a trio of dismal reports from the main economic sectors in August and when combined with those for the construction and manufacturing sector signalled a potential 0.1% shrinking in GDP in the third quarter of the year.
This all comes after the Bank itself warned in its August inflation report of a
one-in-three chance of the economy shrinking at the start of next year as Brexit uncertainty takes its toll, even without a cliff-edge EU withdrawal.
Official figures on Wednesday showing inflation fell back to a lower-than-expected 1.7% in August – its lowest level for almost three years – was helpful to the Bank, offering potentially much-needed wriggle room should it need to cut rates.
But the MPC has repeatedly stressed that building inflationary pressures would still likely need to be reined in to keep inflation to target in the medium term.
Set against all this is the slowdown in the wider global economy as the US-China trade war continues unabated.
George Brown, at Investec Economics, said the Bank will have “plenty of domestic political developments to chew over”.