Bank of England maintains rates, sees more uncertainty in Brexit

LONDON (Reuters) – The Bank of England maintained interest rates on Thursday, highlighting rising financial market concerns over Brexit, a month after raising borrowing costs for the second time in addition to boosting interest rates. 'a decade.

The BoE said its nine debtors voted unanimously to keep rates at 0.75 percent, according to economists' expectations in a Reuters poll, and said national developments have been limited since Aug. 2.

"Since the last meeting of the Committee, it has become clear that there is greater uncertainty about the future evolution of the withdrawal process (from the European Union) in the financial markets," said the central bank.

BoE regional staff said companies were tightening cost control and delaying investment before Britain's withdrawal in March 2019 from the EU. Exporters surveyed for the BoE saw a 40% probability that Brexit would hurt their sales.

Nevertheless, the BoE's growth forecast for the third quarter rose from 0.4% to 0.5%, in part due to higher consumer spending during an exceptionally hot summer.

Most economists polled by Reuters do not expect the BoE to raise rates before Britain leaves the EU and the BoE reiterated that corporate, financial market and household reaction to Brexit would affect monetary policy .

Sterling has changed little after the decision.

"The Bank of England will not want to destabilize the UK's delicate recovery with unpredictable rate hikes," said Tom Stevenson, chief investment officer at Fidelity International.

"The Bank is right to worry about a disordered divorce from the EU and it is also jeopardizing the threat of growing trade tensions," he said.

The next six to eight weeks are expected to be the subject of intensive talks between London and Brussels to define the details of the divorce deal, and some of Premier's lawmakers Theresa May are firmly resisting her favorite compromise.

Earlier Thursday, Governor Mark Carney – whose mandate was extended this week until January 2020 to facilitate the post-Brexit transition – informed May and key ministers of preparations for a "no agreement" Brexit.

Carney warned lawmakers last week that if Britain leaves the EU without a trade deal, economic difficulties could weigh on UK household incomes for years to come.

The central bank said on Thursday that risks to global growth had increased, especially if the US and China were applying protectionist trade measures.

CLOSE TO CAPACITY

The BoE raised interest rates in August as it felt the economy was close to full capacity, which could cause inflation to continue to exceed its target of 2%, even when the pound is weakening.

Its growth forecast for August of this year was 1.4%, which would be the smallest annual expansion since 2012, the inflationary effect of the decline in the pound sterling

Carney said after the August rate increase that households could reasonably expect a quarter-point-a-year rate hike assuming the economy was progressing as expected.

On Thursday, the BoE maintained its normal level that continued tightening of monetary policy would likely be needed if the economy progressed as expected, but any rate hike would be limited and gradual.

Inflation figures for July were slightly below those expected by the BoE at 2.5%. But economic growth from July to July was faster than most economists forecast, at 0.6%, after one of the hottest summers encouraged the British to spend more on barbecues and restaurants.

Labor market data also show increased tightening. The unemployment rate has remained at its lowest since 1975 and wages, with the exception of volatile premiums, are growing at a pace that was three years ago.

BoE staff said the companies were offering pay packages in the range of 2.5% to 3.5%, higher than the previous year, due to "high" recruitment difficulties.