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The Bank of England has kept interest rates on hold amid continued uncertainty over Brexit.
All nine members of the Bank’s Monetary Policy Committee (MPC) voted to keep rates at 0.75%, where they have been since August last year.
In the meeting’s minutes, the MPC said the economic outlook would continue to depend “significantly on the nature and timing of EU withdrawal”.
The MPC’s response in terms of interest rates could be “in either direction”.
In setting interest rates the Bank is aiming to keep inflation within 1% either side of its target of 2%.
The Bank said that predictions contained in its February inflation report “appear on track”.
The projections were conditional on a “smooth adjustment to the average of a range of possible outcomes for the UK’s eventual trading relationship with the EU”.
“The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”
Stockpiling continues
The Bank also found that the “cumulative effect of Brexit uncertainties” had hit investment by companies.
Its data suggested that the level of “nominal investment” may be between 6-14% lower than would have been the case in the absence of Brexit uncertainties, with larger items such as machinery, equipment and buildings singled out in particular.
There was also further evidence that companies were continuing to stockpile, the Bank said, though the signs were that imports had risen strongly recently, so a lot of the goods were coming from overseas.
According to the findings of a special survey carried out by the Bank’s agents, about 80% of firms thought they were ready for a no-deal, no-transition Brexit scenario, against about 50% in January.
However, “companies had continued to report significantly weaker expectations of output, employment and investment in the event of a no-deal, no transition Brexit”.
Options open
Mike Jakeman, senior economist at PwC, said given the “high anxiety” about the UK’s future relationship with the EU, it was “inconceivable” the Bank would have raised rates.
The most notable aspect of the statement was how little had changed over the past month, he added.
“The global economy is slowing, the UK economy is still growing modestly, held up by consumer spending and dragged down by business investment; employment remains very strong and inflation around the Bank’s 2% target.
“As there are still a number of potential outcomes to the Brexit process, the Bank is keeping all options on the table, pledging that its next move could be in either direction.
“However, its base assumption remains that a disorderly Brexit will be avoided and that in this outcome the economy will require a gradual tightening of monetary policy as slack gradually disappears.”
PwC expected the Bank to raise rates once in the second half of this year if a no-deal Brexit is avoided, Mr Jakeman said.
