The Bank of England keeps its rates and keeps its options open before Brexit

LONDON (Reuters) – The Bank of England kept interest rates at a stable level on Thursday and hinted at a slightly faster rise in borrowing costs if Brexit went smoothly, but announced that all bets were unsuccessful if March was to result in a disruptive departure from the EU.

The BoE said its nine pricing executives voted unanimously to keep interest rates at 0.75%, in line with the expectations of a Reuters survey of economists. after having raised them in August for the second time since the financial crisis.

Brexit dominates the outlook for the world's fifth largest economy, with slow growth since the referendum decision to leave the European Union in June 2016, and most economists do not expect further rate hikes of interest before mid-2019.

The pound sterling modestly extended its gains against the US dollar = GBP to hit a one – day high after the BoE 's policy announcement.

"If an agreement on Brexit had already been signed and sealed, the MPC may have raised interest rates today … but with lingering uncertainty about Brexit, it is unlikely Not surprising that the MPC has decided to keep the burden on rates yet, "said John Hawksworth. Chief Economist at PwC Accountants, said.

The BoE said consumer spending had performed better than expected in recent months, but companies were retaining their investment as long as relations with Britain's largest trading partner were unclear.

Prime Minister Theresa May has not yet signed a transitional agreement guaranteeing that goods and people can continue to move freely between Britain and the EU after Brexit on March 29th.

"The recent intensification of Brexit-related uncertainty seemed likely to contain business spending in the short term," BoE policy makers said.

The BoE said that a disruptive Brexit could result in inflationary pressure due to a weaker currency, a damaged supply chain and possible tariffs, suggesting that it might have to raise its rates .

In return, policymakers should strike the right balance between trade loss, increased business uncertainty and tight financial conditions, which would argue for a reduction in borrowing costs.

"The monetary policy response to Brexit, whatever its form, will not be automatic and could go both ways," said the BoE, echoing Governor Mark Carney's earlier remarks.

Assuming the Brexit goes well, the economy is expected to continue growing at about 1.75% a year, the BoE said.

This rate is well below the rate of more than 2% that was typical before Britain voted in favor of leaving the EU, but the BoE said the economy was at full capacity and that inflation would take three years to fall from 2.4% to 2% now.

The economy is expected to start running out of capacity late next year, earlier than expected by the BoE in August.

"Surplus demand margin should (…) be created, leading to higher domestic costs growth," said the BoE.

This concern about inflation comes despite the fact that the BoE forecast released on Thursday indicates a rise in interest rates of almost three points over the next three years, compared to just over two in the forecasts that accompany the August rates rise.

While these assumptions are based on market prices – and do not constitute a commitment by the BoE to raise rates – they give some idea of ​​how quickly the BoE estimates that borrowing costs will need to increase for inflation becomes the target again.

Despite excess demand and faster-than-expected wage growth, the BoE's medium-term earnings guidance remained unchanged from August, growing by 3.25% at the end of next year and 3 , 5% at the end of 2020.