The Bank of England said on Thursday that Brexit uncertainty had “intensified considerably” over the last month and that falling oil prices were likely to push inflation below its 2 per cent target soon.
All nine of its rate-setters voted to keep rates at 0.75 per cent, as expected. But minutes from their meeting this week showed growing unease about turmoil surrounding Britain’s divorce from the European Union, now due in little more than three months’ time.
The British government said on Tuesday it would implement plans for a no-deal Brexit in full and begin telling businesses and citizens to prepare for the risk of leaving the EU without an agreement.
BoE officials on Thursday lowered slightly their forecast for British quarterly economic growth in the last three months of 2018 to 0.2 per cent from 0.3 per cent previously, and said the picture in the first quarter of 2019 was likely to be similar.
“Brexit uncertainties have intensified considerably since the committee’s last meeting,” the Monetary Policy Committee said in a summary of its December meeting.
“These uncertainties are weighing on U.K. financial markets.”
They noted a recent fall in sterling and equity prices and a rise in volatility.
While they stuck to their view that domestically-generated price pressures continue to build, a drop in crude oil prices was likely to push down the headline rate of consumer price inflation to around 1.75 per cent in January.
Inflation was likely to remain below target in the following months.
Most economists polled by Reuters do not expect the BoE to raise rates again until after Britain has left the EU in March, and the BoE has said the terms of Brexit will heavily influence the path for its monetary policy decisions.
The BoE repeated its view that interest rates could move in either direction after Brexit, depending on how it turns out.
Late last month the BoE said Britain could suffer greater damage to its economy than during the global financial crisis under a worst-case Brexit scenario.
On Wednesday, the U.S. Federal Reserve raised interest rates and stuck by a plan to keep withdrawing support from an economy it views as strong – further hitting U.S. stocks and bond yields as investors feared the Fed risks choking growth.