The Bank of England’s Monetary Policy Committee (MPC) has voted to keep interest rates on hold at 0.75% pa with the Bank of England warning that the delays and uncertainty of Brexit had harmed the UK’s long-term growth prospects.
The MPC said it is ready to cut interest rates if a post-election bounce fails to materialise and if there were signs that growth will remain slow.
High street banks use the base rate as a reference point for many mortgages and savings accounts. So lower interest rates are not good news for savers but good news for borrowers.
Some MPC members are still looking to cut interest rates to 0.5% and no doubt they will if the economy weakens. The Bank’s latest economic forecast predicts that the economy did not grow in the last 3 months of 2019. That said, the UK economy is expected to expand by 0.2% and a trade deal between the US and China that will lower tariffs would provide a global economy boost. Although the coronavirus crisis may dampen this.
In the March budget the government is expecting to increase spending which could also provide a further boost to growth. The UK’s potential growth before the financial crisis was 2.9% and since reduced to 1.1% and 1.6% over most of the past 10 years.