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Bank’s rate-setting still a ‘hostage to uncertainty’

19 Sep 2019

bank of englandResponding to the Bank of England’s decision to hold interest rates at 0.75%, Tej Parikh, Chief Economist at the Institute of Directors, said:

“The Bank of England feels it has little leeway to do anything other than hold interest rates, with monetary policy still a hostage to uncertainty.

“Though strong wage growth may point to inflationary pressures down the line, right now it’s best to keep interest rates low to support businesses and households while the risk of a disorderly no-deal Brexit lingers. The recent drop in the headline inflation figures has also given the MPC additional backing to put any rate hikes on ice.

“The Bank would have also been cognizant that lowering rates now, to provide extra juice for the economy, may eat into any further stimulus it needs in the event of a no-deal. If a disorderly Brexit does appear likely to materialise, the Bank must be ready to countenance a special intervention to shore up confidence.

“Brexit is not the only factor driving the Bank’s decisions. The ongoing US-China trade war and slowing growth among key trading partners are also subduing the UK economy, and strengthening the case for supportive monetary policy.”

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