The Bank of England (BoE) has decided to keep the interest rates steady yet again as the uncertainty of Brexit make it increasingly tough to predict how the economy of the United Kingdom will perform in both the short- and long-term.
Today, the central bank announced that it was keeping its benchmark interest rate at 0.75%, after raising the key rate twice from an all-time low in 2017.
The bank is maintaining a wary eye on Brexit deadline that was supposedly due next week and is watching as the efforts of the government of the United Kingdom to secure a short extension to its withdrawal from the European Union.
A Brexit delay could have a significant effect on the interest rate plans and economic predictions of the central bank.
The bank stated: “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal.”
Businesses and economists have warned that an extension could have further damage on investment and business confidence by prolonging uncertainty and possibly change consumer behaviour.
Last week, a senior UK economist at Capital Economics, Ruth Gregory, stated: “The longer that Brexit uncertainty lasts, the longer it could weigh on the economy.”
A “Brextension” is considered preferable than a no-deal Brexit. However, it is not solving anything.
A senior political economist at Aberdeen Standard Investments Research Institute, Stephanie Kelly, stated: “It’s a good thing. But it’s not the solution.”
Previously, the BoE predicted that a no-deal Brexit could cause more damage to the United Kingdom than the global financial crisis, with expectations that the economy of Britain would shrink by approximately 8 percent within a year and house prices would plummet by around 30%.
Last Wednesday, it warned again that if there is a no-deal Brexit on the 29th of March, which is still the default scenario, it could not predict how it would react.
The Bank stated: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”
Last Wednesday, the BoE also noted that uncertainty about the timing of Brexit was having a big impact on the UK pound.
The Bank stated: “Shifting expectations about the potential nature and timing of the United Kingdom’s withdrawal from the European Union have continued to generate volatility in UK asset prices, particularly the sterling exchange rate.”