Bank of England Expected to Hold Interest Rates Amid Brexit Chaos

(Bloomberg) -- The Bank of England is set to keep interest rates unchanged next week as the government flounders over its exit from the European Union.

All but one of 60 economists in a Bloomberg survey predict the Monetary Policy Committee will maintain the benchmark at 0.75 percent when the decision of its nine members is announced Thursday. A unanimous vote is expected.

Recent data have been mixed, with the U.K. economy showing signs of losing momentum but strong wage figures suggesting inflationary pressures are building in a labor market devoid of spare capacity. Overshadowing everything, though, is Brexit, with Prime Minister Theresa May’s struggles to avoid exiting the EU without a deal in March expected to stay the hand of policy makers.

“The policy backdrop has deteriorated somewhat since their November meeting -- in particular with regards to activity data and political uncertainty -- so the MPC might come out with a slightly more cautious tone,” James Rossiter, an economist at TD Securities, said in a note.

Investors have pared back bets on a rate hike next year amid the political chaos over Brexit. Still, Bloomberg Economics says the BOE could act as soon as May if a negotiated settlement with the EU is reached. Wage growth accelerated to a 10-year high between August and October, a sign that labor shortages are forcing employers to raise pay to retain and attract staff.

The BOE will publish new forecasts on growth and inflation in February, just weeks before the U.K. is set to exit the European Union.

To contact the reporters on this story: Jill Ward in London at jward98@bloomberg.net;Harumi Ichikura in London at hichikura@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson

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