Pedestrians walk past the Bank of England (BOE) in the City of London, U.K. (Photographer: Simon Dawson/Bloomberg)

BOE Says More Firms Trigger Brexit Plans as Rate Left Unchanged

(Bloomberg) --

The Bank of England said more companies are triggering plans for a no-deal Brexit as it kept policy in a holding pattern while the government takes withdrawal talks to the brink.

Around two-thirds of firms surveyed by the central bank said they had started implementing contingencies for a disorderly departure from the European Union. About 80 percent judged themselves ready for such an outcome.

With Britain just days away from its scheduled departure date from the EU, the nation’s future relationship with the bloc is as unclear as ever. Prime Minister Theresa May has asked for a short extension of the timeline, but there’s still a risk that the U.K. could leave without a deal, which would threaten chaos in trade and a sharp drop in the pound.

“Brexit uncertainties had also continued to weigh on confidence and short-term economic activity,” the minutes of the Monetary Policy Committee meeting said. While many firms said they were prepared for no-deal, “companies had also reported that there were limits to the degree of readiness that was feasible in the face of the range of possible outcomes.”

What Bloomberg’s Economists Say

“The Bank of England was forced to stay the course today by the chaotic political backdrop. In the case of a Brexit deal or a long extension, we think a summer rate hike is a possibility. The BOE staff now see the economy carrying more momentum.”

-- Dan Hanson, U.K. economist
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With the cliff-edge so close, the bank’s Monetary Policy Committee, led by Governor Mark Carney, voted 9-0 to hold at 0.75 percent on Thursday, as predicted by all 61 economists in a Bloomberg survey. They signaled they’re in no rush to continue with a series of limited and gradual hikes.

The minutes of the meeting reiterated Carney’s line that Brexit could prompt the central bank to move policy in either direction, but several members of the MPC have since said rates would be more likely to go down than up. Michael Saunders, one of the more hawkish members, said this month he’s doesn’t see a need to move again until the uncertainty of Brexit lifts.

BOE Says More Firms Trigger Brexit Plans as Rate Left Unchanged

U.K. inflation is below the BOE’s 2 percent target, and the bank sees growth weakening this year amid a Brexit-induced slump in business investment.

The bank’s agents reported a sharp decline in investment intentions in manufacturing, the BOE said. There were indications of stockpiling, though that wouldn’t have a large impact on overall growth. The bank said that first-quarter expansion could accelerate to 0.3 percent.

The bank also said that about 40 percent of companies on a panel expect Brexit uncertainty would be resolved this year. About half see it lasting into next year and beyond.

Other major central banks have also turned dovish. The U.S. Federal Reserve on Wednesday unexpectedly slashed its outlook for more rate hikes this year. The European Central Bank this month introduced new series of loans to help revive growth.

After the Fed’s meeting yesterday, investors see a less than 20 percent chance of any BOE rate hikes this year, and a less than 50 percent chance of a move by August 2020.

©2019 Bloomberg L.P.