BOE remains boxed in by Brexit as no-deal fears eclipse wage gains

The Monetary Policy Committee, which has said that the UK needs limited and gradual hikes, will nonetheless vote unanimously to keep interest rates unchanged at 0.75% next week

Bank of England officials are stuck in a Brexit rut, as the UK’s increasingly chaotic political backdrop looks set to drown out any talk of higher interest rates.

The Monetary Policy Committee, which has said that the UK needs limited and gradual hikes, will nonetheless vote unanimously to keep interest rates unchanged at 0.75 per cent next week, according to the majority of economists in a Bloomberg survey. Officials will also lower both their growth and inflation forecasts for 2019.
 

With less than two months until the UK leaves the European Union and no clarity on what form the exit will take, Governor Mark Carney’s press conference on February 7 will likely be dominated by Brexit. The chances of a no-deal outcome — which the BOE have warned could severely damage the economy — increased last week after Prime Minister Theresa May promised to go back to Brussels to seek concessions from an uncompromising European Union.
 

“The MPC will remain on hold, primarily as they appear to have little option at this stage given the uncertainty over Brexit,” said Cathal Kennedy, an economist at the Royal Bank of Canada.
 

As well as keeping their hands tied on policy, Brexit is also complicating the BOE’s forecasting.