Monday, 15th July, 2024
Monday, 15th July, 2024

BoE sits tight awaiting Brexit trade deal outcome

The Bank of England on Thursday held fire over interest rates and stimulus, with Britain and the EU still to strike a post-Brexit trade deal ahead of a looming deadline.

While maintaining its key interest rate at a record-low 0.1 percent, the BoE said it stands ready to carry out “whatever additional action is necessary” as the coronavirus pandemic slashes economic growth.

The central bank’s monetary policy committee (MPC) also said the start of vaccine rollouts “is likely to reduce the downside risks to the economic outlook from Covid”.

“Financial markets worldwide, and some surveys of businesses and consumers, have reacted positively to these developments which are likely to support future UK and global activity,” it added in minutes of its final regular meeting of 2020.

At the same time, the BoE warned on the economic fallout of a “no deal” Brexit.

“The appropriate path of monetary policy would depend in part on the balance of the effects of the United Kingdom’s new trading arrangements with the European Union on demand, supply and the exchange rate,” it said.

“In the event that those trade negotiations did not reach an agreement, the exchange rate would probably fall…, CPI inflation would be likely to be higher and GDP growth weaker.”

While Britain on Thursday said a “no-deal” scenario remained possible, EU negotiator Michel Barnier was cited as saying that an agreement could be struck by Friday.

Britain left the EU on January 31 this year but remains under its rules for another two weeks while it tries to establish the terms of its new relationship with the bloc.

– Eyes on sterling –

Sterling has shot up to 19-month highs against the dollar on increasing hopes of a deal.

“The positive news on vaccines meant that the MPC didn’t feel the need to loosen policy any further at its December meeting,” said Capital Economics analyst Thomas Pugh.

“And, as long as there is a Brexit deal, we don’t think it will need to loosen policy next year either,” amid talk of possible negative rates.

The BoE has pumped out o450 billion under its Quantitative Easing stimulus programme since March, when Covid-19 prompted Britain’s first coronavirus lockdown.

The pandemic led the central bank to also slash its main interest rate.

Prior to this, it pumped hundreds of billions of pounds into the UK economy over the past decade in the wake of the 2008-09 global financial crisis and the 2016 Brexit referendum.

The BoE last week said that while UK banks were “resilient” to the risks of Brexit and the coronavirus, financial services could face “disruption” when the transition period ends.

Britain has been one of the countries worst hit by the pandemic in Europe in terms of deaths and economic fallout.

In response to this year’s health crisis, the UK government has so far spent about o300 billion in emergency measures to stem chronic economic turmoil.

Sunak announced Thursday a one-month extension to his furlough jobs support scheme, which will now run to the end of April.

The furlough plan, first introduced as the UK entered an initial lockdown earlier this year, pay up to 80 percent of wages for around 9.9 million private-sector workers.

:: Share ::