Breaking News

Bank of England's Brexit views in focus as rates set to stay on hold

Economic IndicatorsDec 13, 2017 07:10PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. A statue is silhouetted against the Bank of England in the City of London

By David Milliken

LONDON (Reuters) - The Bank of England's views on Brexit will be scrutinized by investors on Thursday when the central bank announces its first policy decision since raising rates for the first time in more than a decade last month.

Both financial markets and economists expect BoE officials will wait nearly a year before raising interest rates again - a much slower pace of tightening than the U.S. Federal Reserve.

The "very gradual" pace of tightening signaled by the BoE last month reflects both uncertainty about the economic impact of ongoing talks to leave the European Union, as well as weak underlying inflation pressures that belie a headline rate at its highest in nearly six years.

Last week's judgment by the European Commission that Britain had made sufficient progress in Brexit talks to move on to negotiations over trade and an interim deal to cover the period until 2021 should reinforce the BoE's assumption that the Brexit process will be smooth.

"We expect a 'holding position' from the BoE ... and a neutral tone on Brexit progress," said Robert Wood, UK economist at Bank of America Merrill Lynch (NYSE:BAC).

Like most economists polled by Reuters, he expects the BoE's Monetary Policy Committee to vote 9-0 to keep rates at 0.5 percent, after a 7-2 split in favor of raising rates by a quarter of a percentage point last month.

BoE Governor Mark Carney has said the central bank will focus on consumers' and businesses' reaction to Brexit talks, rather than make its own judgment about the economic impact.

Wood said he did not think last week's Brexit progress - which had been in some doubt - would make the BoE raise rates sooner in 2018.

Consumer demand has faltered this year mostly due to rising inflation - not Brexit worries - so last week's agreement removed a downside risk, rather than pointing to stronger growth. Figures overnight pointed to the weakest housing market since 2013.

Last month the BoE maintained its forecast that the economy would grow 1.6 percent next year - slightly faster than expected by the government and most economists polled by Reuters.

Since then, inflation has risen to its highest since March 2012 at 3.1 percent. The BoE says this overshoot is almost all due to sterling's fall after June 2016's Brexit vote, and it expects inflation to fall slowly next year.

Wage growth - which many BoE policymakers view as a good guide to medium-term inflation pressures - remains slow, with regular pay in the three months to October up just 2.3 percent on a year earlier.

However Wolfgang Bauer, a fixed income fund manager at M&G Investments, said Brexit made the BoE the hardest major central bank to predict for next year based on economics alone.

"If there are some hiccups in the negotiation process - and I think that is very likely - we could see some pressure on sterling," he said.

"That ... might make the Bank of England want to have a bit more of a tighter monetary policy. On the other hand, if there's a less-than-ideal Brexit on the horizon, that might dampen economic growth."

Bank of England's Brexit views in focus as rates set to stay on hold


Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email