Fog of Brexit uncertainty slows growth
Brexit and the world economic outlook have created a foggy picture as the Bank of England votes to hold interest rates at current level, writes the Bank's Greater London Deputy Agent Alieda Moore.
Last month the Bank’s Monetary Policy Committee (MPC) provided its latest assessment of the economy and voted on whether to change the current level of Bank Rate – the interest rate that provides the basis for the interest rates set by banks and building societies.
At its February meeting, the MPC voted to keep interest rates at 0.75%.
In its assessment of the economy, the MPC noted that UK economic growth slowed towards the end of last year and appears to have weakened further at the start of this year. This was thought to be partly due to slowing in the world economy, but also because of the higher impact of uncertainty related to Brexit at home.
Uncertainty had led some companies to pause investment and had held back spending by households. The high degree of uncertainty also meant that measures of economic activity were likely to continue to move around a little more than normal over the next few months, making the view of the outlook a bit foggier than usual.
But it’s not all bad news. There is a greater proportion of people in work now than at any time since 1971 and wages are rising faster than prices in the shops. The MPC expects UK growth to recover once this near-term uncertainty fades and should reach 2% by around the end of 2021.
If the economy recovers as we expect, the MPC anticipates that interest rates will need to rise a little further over the next few years to return inflation sustainably to the 2% target. But any rise in interest rates is expected to happen gradually, and interest rates are likely to remain much lower than before the financial crisis.
The Bank is keen to hear more from the public on a range of issues through the formation of Citizens’ Panels across the United Kingdom. We want to hear what you have to say about jobs, pay and the cost of living. And we’d like to know about your experiences of the housing market and how easy you find it to borrow and save money.
Recruitment has already started but if you are interested in becoming a panel member and sharing your opinions with us, please visit www.bankofengland.co.uk/outreach/citizens-panels
Meanwhile, my colleagues and I across the Bank’s Agency network will continue to speak to our contacts in businesses and charities to improve our understanding of what’s happening in the economy throughout the United Kingdom.
Alieda Moore is Bank of England Deputy Agent for Greater London @BoELondon
Liked this? Read these: