Bank of England still constrained by Brexit uncertaintyContributors Ambrose Crofton, Global Markets Insights Strategy Team
The Bank of England (BoE) Monetary Policy Committee (MPC) today voted unanimously to keep interest rates at 0.75%. This was in-line with market expectations and as such there was a muted market reaction to the announcement.
For now, Brexit uncertainty continues to constrain the BoE from significantly altering its direction of monetary policy. As a result, the normalisation of interest rates for the BoE has been gradual to say the least, with rates only 50 basis points higher than where they were following the post-referendum interest rate cut. The BoE will be hoping that when they meet at the next inflation report meeting in May, there will be some clarity on the direction of travel.
On the Bank’s latest forecasts for growth (exhibit 1), real GDP growth for 2019 and 2020 was downgraded to 1.2% year on year (y/y) and 1.5% y/y respectively. Governor Mark Carney cited slower estimates for global growth, and an assumption of a longer period of Brexit-related uncertainty than it had previously anticipated, as the primary drivers of the changes. For 2021 the growth forecast was revised up to 1.9% y/y.
Exhibit 1: Bank of England forecasts
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