Reuters
A man walks past the Bank of England.
The Bank of England on Thursday unanimously kept interest rates on hold, though it said it would lift interest rates if Brexit is “smooth” and the global economy recovers.
The Bank of England in the 9-0 decision acknowledged rising inflation but also economic risk.
“Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target,” the Bank of England said.
It said interest rates could move in either direction if there’s a no-deal Brexit.
The British pound GBPUSD, -0.3865% wavered around the $1.21 level, down from $1.2159 on Wednesday.
“The path for policy will ultimately be decided by political developments in the coming months, on which there is little clarity at present. But, in the event of an orderly outcome, we see significant scope for policy divergence between the BoE and the US Federal Reserve/ECB,” said economists at BNP Paribas.
Sterling has been battered over concerns about the U.K. leaving the European Union without an agreement at the end of October under the new government of Prime Minister Boris Johnson.
“The probability market participants attach to a no-deal Brexit has increased,” according to the inflation report which was also released by the central bank.
Separately, data released Thursday showed the Markit/CIPS U.K. manufacturing PMI stayed at 48 in July, a figure showing contraction.
