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Bank of England leaves interest rates on hold as UK braces for no-deal Brexit - as it happened

This article is more than 5 years old

Bank’s Monetary Policy Committee maintains borrowing costs, and warns that further cliff-edge Brexit deadlines could hurt economy

Earlier:

 Updated 
Thu 21 Mar 2019 11.00 EDTFirst published on Thu 21 Mar 2019 04.03 EDT
The Bank of England in London earlier this month.
The Bank of England in London earlier this month. Photograph: Stephen Chung/Xinhua/Barcroft Images
The Bank of England in London earlier this month. Photograph: Stephen Chung/Xinhua/Barcroft Images

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Key events

Time for a quick recap:

The Bank of England has left UK interest rates on hold, as it tries to protect the UK economy from Brexit pains.

The Bank says that 80% of UK firms think they’ve done all they can to prepare for a hard Brexit; they still can’t protect themselves from a plunging currency or queues at the border, though.

The Brexit crisis has prompted the CBI and the TUC to issue a joint statement, urging the government to find a Plan B. They warn that thousands of companies and millions of workers will suffer otherwise.

The pound has come under pressure, as Theresa May tries to persuade EU leaders to grant the UK a Brexit extension. Sterling is currently down half a cent at $1.3135, as analysts warn that May’s deal is unlikely to be be approved by parliament next week.

UK consumer spending hasn’t been dampened by the Brexit crisis, though. Retail sales rose by 0.4% in February, beating expectations of a 0.4% drop.

Chris Hunt, retail partner at City firm Gowling WLG, says:

“Despite the furore surrounding Brexit, this may well be as a result of unexpected UK earnings growth, so it is important to maintain perspective about what this means for the industry in the long term.”

Britain’s fiscal position has also strengthened. Borrowing this financial year is around £18bn lower than a year ago, and its lowest in 18 years.

Stock markets are mixed. Wall Street has opened higher, but there are losses in some European markets - and a sell-off in Brazil after former president Michel Temer was arrested in a corruption probe.

Stock markets today Photograph: Refinitiv

Brazil's stocks fall more than 1%, the real extends losses, bond yields and implied interest rates rise on news that former Brazilian president Michel Temer has been arrested as part of the "carwash" money laundering and corruption investigation. pic.twitter.com/dwhdu0BJVL

— Jamie McGeever (@ReutersJamie) March 21, 2019

#BRAZIL’ s Former Prsdt Michel #Temer was arrested this morning. He is concerned by two affairs linked to #LavaJato #corruption #justice @Valeurs piece published in 2017 ! https://t.co/d2ksmJuUT8 https://t.co/jytSvlwGc7

— VirginieJacobergerL (@VJacobergerL) March 21, 2019
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Bank holds interest rates: What the experts say

Tom Stevenson, investment director for Personal Investing at Fidelity International, predicts that UK interest rates will remain on hold until 2020, having been left at 0.75% today.

There is certainly no economic imperative for the Bank to change its cautious stance. With inflation below its 2% target, the pressure is off. The only way that interest rates would rise this year would be if MPs agreed a deal and there were a material relief pick-up in the economy. Even then, a rising pound would likely bear down on inflation so ‘lower for even longer’ it almost certainly is.

Kevin Doran, chief investment officer at AJ Bell, says savers will continue to get a meagre return:

“Over the decade, a UK bank account will have given savers a 5% return, during which time the cost of living has increased by 34%. These savers will be hoping that the Bank can find reverse gear sometime soon, but today’s announcement will provide them with little hope.”

Tej Parikh, senior economist at the Institute of Directors, fears the Bank is ‘paralysed’ by political uncertainty:

“Facing a Schrödinger’s Brexit in just over a week, the Bank of England continues to have its hands tied on interest rates.

“It’s virtually impossible for the Bank to make clear decisions right now while the various unknowns surrounding the future path for the economy linger. The desire to gradually normalise interest rates from their low levels is already complicated by improved wage growth on one side and weakening economic growth on the other, notwithstanding calculations over the Brexit process. All eyes will now be on any potential further communications from the Bank on how it might support liquidity and confidence in the event of a possible no deal.

Quilter Investors portfolio manager, Hinesh Patel says a disorderly Brexit would be a real conundrum for the Bank:

At the moment the Bank is looking at a Catch-22 type situation. If the UK were to endure a fractious exit from the EU that could lead to a further drop in the Pound, which puts upward pressure on inflation through higher import costs. In the short term at least that will lead to rising prices and the natural response to that would be for the Central Bank to raise rates to avoid fuelling further increases.

At the same time, however, it would come under pressure to inject stimulus into the economy with a loose policy stance to help balance out any immediate term financial impacts of trade disruption.”


JP Morgan has revised its Brexit forecasts...and downgraded the chances that Britain leaves the EU with Theresa May’s deal.

The bank now thinks a general election is most likely (at 30%, up from 15%), with a higher chance of the UK crashing out without a deal (15%, up from 10%).

But with another referendum at 15%, JP Morgan aren’t sticking their neck out about what happens next....

JPMorgan updates its Brexit probabilities.

In a nutshell: every outcome is unlikely - but the least unlikely is a general election 😬 pic.twitter.com/YDh86TYYTD

— Andy Bruce (@BruceReuters) March 21, 2019

I have fixed it for them. pic.twitter.com/4UQVC5OuvT

— Andy Bruce (@BruceReuters) March 21, 2019

CBI and TUC urge government to find Brexit Plan B

Newsflash: The UK’s top union official and the head of its biggest employers group have issued a joint plea to Theresa May to change Brexit policy before the UK suffers major damage.

TUC General Secretary Frances O’Grady and CBI Director-General Carolyn Fairbairn have sent the PM a joint letter calling for a new approach.

They say:

Together we represent millions of workers and tens of thousands of businesses. It is on their behalf that we are writing to you to ask you to change your Brexit approach.

Our country is facing a national emergency. Decisions of recent days have caused the risk of no deal to soar. Firms and communities across the UK are not ready for this outcome. The shock to our economy would be felt by generations to come.

We ask you to take three steps to protect the jobs, rights and livelihoods of ordinary working people.

First, avoiding no deal is paramount. Businesses and employees alike need to see their Government clearly acknowledge the reckless damage no deal would cause and recommit itself to avoiding this outcome.

Second, securing an extension has become essential. 88% of CBI members and a majority in Parliament agree this is better than no deal. But at the same time an extension must genuinely allow a way forwards, and be long enough for a deal to be agreed.

Third, ‘the current deal or no deal’ must not be the only choice. A Plan B must be found - one that protects workers, the economy and an open Irish border, commands a parliamentary majority, and is negotiable with the EU. A new approach is needed to secure this – whether through indicative votes or another mechanism for compromise.

We cannot overstate the gravity of this crisis for firms and working people. We request an urgent meeting with you to discuss our concerns and hear your response.

Some good news -- the Bank’s forecasters predict that the UK economy will grow by 0.3% in the current quarter.

That’s up from a previous forecast of 0.2%, and would also be an acceleration on the 0.2% growth recorded in October-December 2018.

It’s hard for the Bank of England to make many firm forecasts until we have more clarity on Brexit.

But as things stand, the MPC still expects to raise interest rates “at a gradual pace, and to a limited extent” over the next couple of years.

Bank: Brexit cliff edges could cause more uncertainty

Brexit clearly cast a dark shadow over this month’s Bank of England monetary policy meeting.

The committee discussed the likely impact of Brexit uncertainties on the economy in the future -- and are worried that a series of ‘cliff-edge’ deadlines could hurt the UK.

The minutes of the meeting say:

If, for example, businesses judged that uncertainty was likely to fade quickly, then that might lead to a larger immediate reduction in capital expenditure, as they waited for a resolution to emerge.

In contrast, a more protracted period of uncertainty might lead to a less abrupt reduction in expenditure if companies judged it too costly to wait for any resolution to become apparent. There was also the possibility of further cliff-edge uncertainties that could have a significant effect on spending as any new deadline approached.

That’s a timely warning, as the UK tries to push Brexit Day back to the end of June.

Brexit uncertainties had also hurt confidence and business investment, the Bank of England warns.

Its Monetary Policy Committee have also heard that firms have been stockpiling ahead of Brexit.

The minutes say:

There had also been further evidence from a range of sources that companies had been building up their inventories recently, although the latest strength in imports was consistent with that not having a large impact on GDP growth.

BoE: 80% of firms ready for no-deal Brexit

The Bank of England also reports that four-fifths of UK firms have done all they can to prepare for a no-deal Brexit.

The minutes of this week’s meeting say:

More broadly, the results from the latest special survey of companies’ preparations for EU withdrawal, conducted by the Bank’s Agents, had suggested that around 80% of companies judged themselves ready for a no-deal, no-transition Brexit scenario. This compared with a figure of around 50% in the equivalent January survey.

However, that does not mean that a disorderly Brexit wouldn’t create serious problems.

The Bank adds:

Nevertheless, many of those companies had also reported that there were limits to the degree of readiness that was feasible in the face of the range of possible outcomes in that scenario. These included issues relating to tariffs, border frictions, exchange rate movements and recognition of certifications, which many companies had noted were outside their control. In the Agents’ survey, companies had continued to report significantly weaker expectations of output, employment and investment in the event of a no-deal, notransition Brexit.

Bank of England leaves rates on hold

Newsflash: The Bank of England has left UK interest rates on hold at 0.75%.

It’s a unanimous vote too, with all nine members of the MPC choosing not to change borrowing costs this month.

The UK central bank has also left its quantitative easing (stimulus) programme unchanged.

More to follow!

It’s nearly time for the Bank of England’s interest rate decision (surely a no-change?).

Traders will be looking for more clarity about how monetary policy may develop in future months. Jeremy Thomson-Cook of World First says there’s not much certainty now:

Summary of UK interest rate probabilities at the moment; market currently pricing in a 28% chance of a hike by the end of the year but also a 10% chance of a cut.

Nobody has a scooby doo

— WorldFirst's Jeremy Thomson-Cook (@WorldFirstJTC) March 21, 2019

One of Britain’s biggest steel stockholding businesses is on the brink of administration, Sky News reports.

Meridian Metal Trading, which employs about 170 people, could appoint administrators on Friday, unless emergency talks with prospective buyers deliver a breakthrough.

Meridian imports, deals and processes steel sheet and coil, and supplies nearly 250,000 tonnes of steel to hundreds of customers annually, Sky explains. More here.

Exclusive: Meridian Metal Trading, one of the UK's biggest steel stockholding groups, is on the brink of collapse days after MPs accused the Government of failing to deliver a sector deal for British steel companies. https://t.co/tYT7aavXRD

— Mark Kleinman (@MarkKleinmanSky) March 21, 2019
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The pound’s wobble seems to be triggered by European Parliament Brexit coordinator Guy Verhofstadt.

Verhofstadt has told reporters that the UK shouldn’t be allowed to extend Brexit beyond the parliamentary elections scheduled for May 23-26.

A longer delay would create “an enormous problem,” Verhofstadt added.

EU's Verhofstadt says it's impossible to extend Brexit beyond May 23 https://t.co/CzCfnbdlOm via @LyubovEmWorld #tictocnews pic.twitter.com/HDHiJOz1rV

— Zoe Schneeweiss (@ZSchneeweiss) March 21, 2019

The chancellor has taken a break from the Brexit crisis to tweet about today’s borrowing figures:

Today’s @ONS figures show how far we’ve come in repairing the public finances. Compared to this point in previous years, borrowing is the lowest for 17 years. We’re taking a balanced approach, investing in public services and keeping taxes low, while getting debt falling. pic.twitter.com/Gf3g8lt1Ll

— Philip Hammond (@PhilipHammondUK) March 21, 2019

On that “debt falling” claim... the national debt has actually increased by £29.1bn over the last year to £1,599.6bn.

But as a percentage of GDP, it has dropped from 75% to 74.1%, which is probably what Hammond is referring to.

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