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Interest rates to remain on hold, says Bank of England

Bank of England in London home of the MPC who set UK interest rates

Interest rates have been kept on hold at 0.75% by The Bank of England. This may be cut, however, if uncertainty around Brexit continues into the New Year and slow economic growth fails to improve.

In a statement released today, the Bank’s Monetary Policy Committee (MPC) said they voted 7-2 to keep the rate at the current level.

“If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in GDP growth and inflation.”

It said the UK economy was expected to pick up from its current weakness.

However, the Bank said it would monitor companies’ and households’ reactions to Brexit as well as global growth.

The Bank’s Monetary Policy Committee (MPC) voted 7-2 in favour of keeping the official interest rate on hold.

“If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in GDP growth and inflation,” the committee said in a statement.

GDP forecast weaker than expected

Gross domestic product (GDP) growth was worse than expected, though not by much, at 0.3% at the November meeting where the rate was also kept on hold. This was despite household spending continuing to rise, as business indicators including exports and investments stayed low.

The Bank will continue to monitor key indicators around Brexit, including household and business responses.

For their fourth quarter predictions, GDP was set at 0.1% according to the statement. This is weaker again than at the last meeting, with the car-manufacturing and construction sectors suffering particularly poor ratings from the Bank’s assessors.

The Bank expects inflation to fall to 1.25% from last readings.

“All sectors affected”

The MPC said that rising cost of goods, combined with a weak economy generally, meant businesses felt unable to pass on higher prices to consumers, which resulted in a squeezing of profit margins.

Consumer-focussed brands suffered the most, with pressure already exacerbated by the eCommerce movement, a bump in the National Living Wage, and increased business rates.

“All sectors were affected, but margins were most squeezed in construction and consumer facing sectors.

“Investment intentions remain depressed by slower global growth and political uncertainty,” but the interest rate may be increased if global growth steadied and Brexit concerns cleared up, the MPC said.

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