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Bank of England holds key interest rate at 0.75% amid Brexit uncertainty


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Bank of England holds key interest rate at 0.75% amid Brexit uncertainty

The Bank of England said Dec. 20 that its Monetary Policy Committee voted unanimously to hold interest rates at 0.75% amid a concerns about Brexit.

The committee also said the monetary policy response to Brexit "in whatever form it takes" will not be automatic and could go in either direction.

"Brexit uncertainties have intensified considerably since the committee's last meeting," the committee said.

These uncertainties are "weighing on financial markets," while bank funding costs and corporate bond yield spreads have spiked. Additionally, U.K. equity prices have slumped and Sterling has not only fallen but become more volatile, the committee said.

Business investment has slowed as companies put decisions about growth and spending on ice until there is greater clarity from Brexit negotiations. A "subdued" housing market and signs of a slowdown in retail spending also contributed to the decision to hold the key rate, the statement said.

Domestic inflationary pressures have also intensified since the committee's last meeting, with employment growth picking up and the labor market tightening. Annual growth in regular pay has been more pronounced than the committee's November report had anticipated, at 3.4%.

However, this is expected to change from early 2019. Consumer price inflation had been running at 2.3% in November, just above the 2.0% target. But the Bank of England estimates that inflation should come down to roughly 1.75% in January due to the recent decline in oil prices, and is expected to stay below the 2.0% target in subsequent months.

The broader economic outlook will hinge on the nature of the U.K.'s exit from the EU, particularly trade arrangements between the U.K. and EU, the committee said.

The committee also voted to hold the stock of sterling nonfinancial investment-grade corporate bond purchases at £10 billion, and the stock of U.K. government bond purchases at £435 billion.