The Bank of England will keep rates unchanged despite the Brexit delay

LONDON (Reuters) – The Bank of England should leave interest rates unchanged on Thursday and keep its options open for later in the year at the time of the announcement of its first political decision. since the postponement of the withdrawal of Britain from the European Union.

Almost no economist polled by Reuters expects the BoE to raise rates by 0.75% until Britain leaves the EU.

Last month, Prime Minister Theresa May set October 31 as a new deadline for Brexit, after failing to convince Parliament to support her contract in time for the March 29 departure date.

In some respects, the UK economy seems ready for only its third interest rate hike since the global financial crisis.

The unemployment rate is at its lowest level in 44 years, wages have been growing at a record pace for the last 10 years and consumer spending has remained strong despite Brexit uncertainties.

But there are reasons for caution, including the possibility that May may continue to resign in the coming months, which could trigger a leadership race for the Conservative Party, national elections or even a second Brexit referendum.

With the BoE unlikely to move now, its updated economic forecasts will be monitored to indicate that it would consider raising rates before Parliament approves a Brexit deal.

These forecasts will probably show that inflation will soon exceed the central bank's target of 2%, which Governor Mark Carney and his fellow policymakers have shown investors are too relaxed about the prospect of rising rates. .

"Next week we'll see that the surprise will be greater than a dawish surprise at the BoE meeting," said Sebastien Cross, interest rate strategist at Bank of America Merrill Lynch , in a note addressed to customers.

Unlike the European Central Bank and the US Federal Reserve, the BoE sees a need for policy tightening and limited and gradual rate hikes. But the financial markets consider only 35% of the chances of a move this year, mainly because of the uncertainty badociated with Brexit.

Britain, the world's fifth largest economy, has seen growth slow since the June 2016 referendum decision to leave the EU long before the global slowdown of last year began.

Three months ago, the BoE lowered its forecast for British economic growth to 1.2% in 2019, which would be the lowest since 2009. Some badysts now believe that it looks a bit too dark, despite 39, a series of business surveys.

In March, the BoE Monetary Policy Committee stated that it was difficult to determine whether a moderate sentiment foreshadowed weakness, or reflected temporary tensions in Brexit, as after the referendum.

The effect of uncertainty on the Brexit was largely in business investment, which contracted every quarter last year for the first time since 2009.

Carney warned last month that corporate uncertainty weighed heavily on productivity, which would also have inflationary consequences.