Bank of England holds the low interest rates as per the consequences of Brexit


After the Brexit vote in 2016, it was predicted by the experts that the overall economy of the UK would suffer an immediate crisis. But nothing happened like that; rather the economy grew 1.8% in 2016. But here in the first half of 2017, the situations have changed. The growth rate of the economy has highly slowed down, which has forced the Bank of England to hold the low-interest rates. On Thursday, the Bank of England announced to cut the wages and growth rates because of the uncertainty of the Brexit.

Mark Carney, Governor of Bank of England, stated that “The Bank was pretty close for the first rate hike, but unfortunately because of the lower investments by the companies and the uncertainty of the Brexit, affected everything. “He also said that a new relation with EU would be tested to maintain a smooth transition of the new economy. According to his predictions, the investment levels will go down by 20% in 2020, because of the Brexit votes. On Contrast to this statement of Carney, the investors mentioned that there was no sign for the rate hike by the Bank, as per the June’s meeting. Thus, the investors stepped back their expectations for the investments.

The former head of British chambers of Commerce, John Longworth, stated that the wary tone of the Governor is indicating towards the “Project Fear,” which was maintained at the time of Brexit, to scare the supporters of Brexit. He also stated that the chief officers of Bank are playing with the game of growth rates as the Bank is not keeping its words. In May, the Bank predicted the growth rate to be around 1.9%, but now it has reduced the predications to 1.7 %. Like this, the predictions for economy growth for 2018, was 1.7%, but it has also been reduced to 1.6%. These kind of situations were suggesting intensive changes in the monetary policy of the Banks. But no one knew, the changes will be maintained much sooner than expected.

Eight members of the monetary policy committee participated in the voting for the interest rates. 6 members voted for 0.25 % of Bank rates, and only 2 members were against the votes. But again, as per the decision of the majority, the rates were lowered to 0.25%. Ian McCafferty and Michael Saunders voted against the other 6 members for 0.25% rate rise. These two members also voted for the same concept earlier in the June’s meeting, when the decision was 5-3. But now the decision of the MPC is quite clear. Earlier, Andy Haldane, the chief Economist of Bank of England, has supported for the rate hike in the second half of 2017, but he also went with the majority and voted for 0.25% of low interest rates.

Up on such decisions of Bank of England, Citi Bank stated that there is not much to be worried as the Bank of England is worrying. The situation after the Brexit vote is quite normal; there is no need to be panic. But the BoE neglected this statement by mentioning the negative impacts of Brexit on the economy. On Thursday, the BoE also stated that the borrowing costs would be raised in the coming three years, as compared to the borrowing rates of investors. Again, they also hinted at the end of Bank lending scheme in February 2018. The asset purchase program was left unchanged, as it doesn’t have any relation with the Brexit. Considering all these decisions of BoE, the central Banks have also split their verdicts on the rate highlights.

As there is no clarity on Britain’s relationship with EU, many businesses are scaling back investments. This has led the inflation to rise and to go beyond the consumer spending in the country. Just after the Brexit vote, Britain avoided the recession period, to cross check the inflation. And because of that, now the inflation is maintained above 2 % of BoE‘s target and the unemployment is running at four decade low. The statistic of employment is around low as 4.5%, and the annual house prices have fallen from 9.4% to 4.7%. The wage growth is also reduced because of high inflation. Because of the slow rise in the economy, the Banks have also ignored the forecasts of wage growth. Previously, it was announced that the wages growth would be around 3 % in 2018 and 3.25 % in 2019. But now as per the situations, The Bank of England has decided to maintain the wages with half a percent every year. Well, this will directly lead to the strike of employees in the banks. The strikes have already started in some parts of Britain.

In a survey, it has been found that, in all sectors including construction, manufacturing, and other service related industries, the growth rates were slow, which directly led to the weak productivity of Britain in the international market. Here, the situations are indicating towards the Lucidity. Well, it is quite difficult to predict, as Lucidity can happen anytime. Though the deadline for the EU deal is up to March 2019, still the situation of Britain seems out of control. The Cabinet ministers are still pushing up the companies to generate more productivity and revenues, which will directly enhance the overall economy of the country. There is still a year with Britain to write a new history, but again the deteriorating condition of economy is forcing to quite the Brexit.

After low-interest rates decision of BoE for the next three years, the hope for a rate hike is highly reduced. Now everything depends on the workers whether they demand high wage or will go with the Bank. If here Britain will leave the Brexit deal, then there are chances that the economy will reach the ground and the inflation will reach the sky. So, whatever will happen, it depends on the negotiations of Brexit deal.