BoE waits for Brexit clarity as forecasts hint at faster hikes

By BLOOMBERG

NEW DELHI • The Bank of England (BoE) hinted there may be a need for faster interest- rate increases in the coming years in a report dominated by uncertainty over Brexit.

The Monetary Policy Committee (MPC), led by governor Mark Carney, said the economy may start running hot earlier than previously anticipated as wage growth improves and domestic costs build. It sees the inflation rate staying above its 2% goal for the next two years. Interest rates were left unchanged yesterday.

The slightly hawkish bias compared to August is tempered by the fact that the forecasts are based on an assumption for a smooth Brexit that may not come to pass. It said the exit deal with the European Union remains the biggest factor when it comes to the economy and monetary policy.

In a sign of how Brexit is affecting the economy, the BoE slashed its forecast for business investment and sees stagnation this year. It also lowered its 2019 economic growth outlook slightly, to 1.7%.

The UK predictions, including the outlook for faster inflation, are based on market measures indicating that the BoE will deliver about three more quarter-point rate hikes by late 2021, more than were foreseen a few months ago.

The minutes of the meeting reiterated that limited and gradual rate increases will probably be needed over the next few years. The MPC voted 9-0 at this decision to hold the benchmark interest rate at 0.75%, as predicted by all 56 economists in a Bloomberg survey.