The Bank of England (BOE) said more companies are triggering plans for a no-deal Brexit as it kept policy in a holding pattern while the government takes withdrawal talks to the brink.
Around two-thirds of firms surveyed by the central bank said they had started implementing contingencies for a disorderly departure from the European Union. About 80 percent judged themselves ready for such an outcome.
“Brexit uncertainties had also continued to weigh on confidence and short-term economic activity,” the minutes of the Monetary Policy Committee meeting said. While many firms said they were prepared for no-deal, “companies had also reported that there were
limits to the degree of readiness that was feasible in the face of the range of possible outcomes.”
“The Bank of England was forced to stay the course by the chaotic political backdrop. In the case of a Brexit deal or a long extension, we think a summer rate hike is a possibility. The BOE staff now see the economy carrying more momentum,” said Dan Hanson, UK economist.
With the cliff-edge so close, the bank’s Monetary Policy Committee, led by Governor Mark Carney, voted 9-0 to hold at 0.75 percent, as predicted by all 61 economists in a Bloomberg survey. They signalled they’re in no rush to continue with a series of limited and gradual hikes.
The minutes of the meeting reiterated Carney’s line that Brexit could prompt the central bank to move policy in either direction, but several members of the MPC have since said rates would be more likely to go down than up. Michael Saunders, one of the more hawkish members, said this month he’s doesn’t see a need to move again until the uncertainty of Brexit lifts.
UK inflation is below the BOE’s 2 percent target, and the bank sees growth weakening this year amid a Brexit-induced slump in business investment.
The bank’s agents reported a sharp decline in investment intentions in manufacturing, the BOE said. There were indications of stockpiling, though that wouldn’t have a large impact on overall growth.