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UK Interest Rates Could Fall Even if Brexit Deal Agreed

UK Interest Rates Could Fall Even if Brexit Deal Agreed

It has been revealed that even a smooth Brexit could result in interest rate cuts in the UK. The suggestion follows comments made by Michael Saunders, who is a member of the Monetary Policy Committee (MPC) at the Bank of England.

He pointed out that avoiding a no-deal Brexit could result in monetary policy that “could go either way” Saunders went on to confirm that it is “quite plausible” that the next movement seen on the rate could be down rather than upwards. 

In this case, the monetary policy could be “highly accommodative” for an extended period of time. The decision-makers might even decide to loosen the policy at some point, according to Saunders. After these comments were reported, the Pound dropped against the US Dollar.  At the time of writing, it was down by about 0.4%.

This is a change of stance from what has been reported in the past. It has long been believed that the MPC would be more inclined to raise rates if Brexit was achieved with a smooth deal.

These comments were made at a meeting with local business owners at the Barnsley and Rotherham Chamber of Commerce and Institute of Chartered Accountants. He described the uncertainty around the UK’s exit from the EU as being like a “slow puncture” that is causing the British economy to perform at less than its potential.

The Current Interest Rate Situation

Interest rates in the UK have been steady at 0.75% since August 2018. The last movement seen on this rate was an increase from 0.5%.

The most recent meeting of the MPC saw a unanimous decision reached to hold the figure steady at 0.75%. Saunders confirmed that he agrees with the most recent guidance from the BoE, that a gradual increase in interest rates would be needed if the uncertainty generated by Brexit reduces and the global economy starts to grow.  

Trade wars and low levels of growth are currently affecting many countries across the planet. With this in mind, British business owners are increasingly keen to find out more about issues such as international debt collection agency matters.

What If a No-Deal Brexit Happens?

If the UK leaves the EU under a no-deal Brexit, then all of the different monetary policy options will be considered. The exact decision taken will depend by how much growth and inflation levels are affected, taking any possible fall in the Pound into account too.

In this case, they could be left with the tough choice of cutting interest rates to try and stimulate growth, or raising them to try and counter rising inflation and a falling exchange rate.  

Some analysts suggest that raising rates to control inflation would be the best move. However, BoE Governor Mark Carney recently stated that a no-deal Brexit could see him leaning towards a cut in rates.

The next meeting to decide monetary policy is set to take place in November. By this stage, the exact Brexit process will be clearer, and its effect on the UK economy should be taking shape.