Monetary Policy of BoE Still Depends on Brexit Progress

Forex News

Today will be the first meeting of the Bank of England this year, with most economists believe that the Central Bank will leave the interest rate at the same level. The prospects for the central bank's policy until the end of 2018 will depend heavily on the progress in the Brexit negotiations.

In November last year, the Bank of England raised the rate for the first time in a decade, to 0.5%, in order to contain the growing inflation, the growth of which was caused by the weakness of the British pound. The Bank of England's Monetary Policy Committee signaled that two more rate hikes are needed by the end of 2020 to contain inflation.

The sixth largest economy in the world lags behind strong global growth due to rising inflation and a drop in business confidence since the referendum for secession from the EU. The annual rate of inflation in the UK slowed slightly in December, but still the 11th month in a row exceeded the target set by the Bank of England. According to the Office for National Statistics (ONS), consumer prices in the UK increased by 3% in December compared with the same period in 2016, after rising by 3.1% in November.

Nevertheless, the outlook for the economy and interest rates may change rapidly this year, when Brexit talks enter a critical phase. The UK withdrawal from the EU is scheduled for March 2019. Both sides hope to outline the contours of the new trade relations and agree on the terms of the transition period for the new agreement by the end of October.