Brexit Uncertainty Cuts Chances on Interest Rate Hike This Year

Large number of households across Britain could be spared a hike in interest rate in 2019 as Brexit confusion has kept the Bank of England on hold, Evening Standard reported, citing the money markets.

Traders gave their verdicts on Prime Minister Theresa May’s inconclusive victory in House of Commons on Wednesday as interest-rate swap markets reduced the possibility of a quarter-point rate hike from rate-setters of Threadneedle Street this year to just 52 percent.

According to the news report, it is virtual coin-flip in comparison with a two-thirds probability earlier this week.

While May faces a mounting struggle to secure concessions on the controversial Irish border backstop in only two weeks, a potential no-deal Brexit is still undergoing after the defeat of two amendments on Wednesday, creating a fresh short-term uncertainty for the economy.

The chances of an extension to Article 50 were increasing with each day that goes by, Sarah Hewin said, who is the chief European economist of Standard Chartered.

The money market is considering that as long as Brexit confusion persists it will be difficult for the banks to increase interest rates. With the extension of Article 50, the uncertainty is also extended, Hewin said, it’s the rationale behind the pricing.

The Bank of England is keeping the rates on hold since it last rose 0.75 percent in August 2018.

ING’s chief European Economist James Knightley also addressed the lack of Brexit plan at Westminster: In the coming days and weeks, Brexit uncertainty will ensure sterling continues to struggle, plans of business contingency intensify, diverting attention away from growth opportunities, and further diminishing the prospect of tightening the monetary policy.

Bank’s downbeat data also shows how consumers have limited their spending, while political debacle over Brexit continues.

In December, growth in personal loans and credit card lending, which the Bank is targeting for overextended consumers, weakened to 6.6 percent, marking the smallest rise since December 2014.

The number of loans for house purchase also went down to 63,793 in December, the lowest since April.

According to Hansen Lu, an economist of Capital Economics, the outlook for lending is restrained. Even if the Brexit deal is passed in the next few months, the mortgage approvals will still be down 2 percent by the end of the year, before recovering next year, he added. And, if Britain were to leave the European Union with no deal, house purchase approvals could drop as much as 10%.

Author: Sandali Tiwari

A former journalist, Sandali is a content marketer with over 5 years of writing experience, across various industries including Food Innovation, Healthcare, and IoT and Technology. Sandali has been weaving corporate stories for organizations through different forms of impactful marketing content. Her key aim is to strategically align well-crafted narratives with business objectives, translating into a powerful communications platform for the company.