Interest rates to stay at 0.1%

The Bank of England has decided to keep interest rates at the current level of 0.1%, whilst Brexit talks are ongoing. The vote, which was undertaken by the Monetary Policy Committee, came to this conclusion at their final meeting of 2020. ;
Bank of England

The Bank of England has decided to keep interest rates at the current level of 0.1%, whilst Brexit talks are ongoing.

The vote, which was undertaken by the Monetary Policy Committee, came to this conclusion at their final meeting of 2020.

Commenting on the situation, the Bank stated that they predict the UK to experience a less severe contraction throughout the fourth quarter.

Furthermore, the Bank believes that the vaccine for Covid-19 provides a sense of optimism for 2021.

However, the UK is still experiencing significant uncertainty, attributed to the impending Brexit deadline.

Prior to the announcement of the decision, the Bank highlighted:

“The outlook for the economy remains unusually uncertain.

“It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.”

With regards to the progress of the coronavirus vaccine, the Bank said that the vaccine is “likely to reduce the downside risks to the economic outlook.

“Nevertheless, recent global activity has been affected by the increase in Covid cases and associated reimposition of restrictions”

One of Quilter Investors portfolio managers, Hinesh Patel comments:

“Just as the Federal Reserve awaits news of a stimulus package, the Bank of England is stuck waiting for the Brexit negotiations to be resolved and as such have chosen to keep further stimulus on hold.

"It appears the BoE are paralysed to the outcome of a Brexit deal but still are still conscious as they seek to adapt where they can.

“But with much of the country under tier three restrictions, they are simply in wait and see mode before responding to any further economic threats."

A financial analyst at AJ Bell named Laith Khalaf, also commented on the situation:

“The Bank of England won’t make its next move until it knows which way Brexit is heading.

"In the event of no-deal, it would likely be willing to look through the temporary jump in inflation as a result of weaker sterling and the imposition of tariffs, but it couldn’t turn a blind eye to the economic impact of a disorderly Brexit.

“The Bank’s governor has said no deal would have a greater long-term economic effect than the pandemic, so we can expect further stimulus should Brexit talks fail, either in the form of more QE, or interest rate cuts.  On the latter, the Bank is already flirting with its effective lower bound, and there has been a chorus of groans from high street banks about the prospect of negative rates.

“Whether or not the Bank chooses to cut rates in 2021 or not, the outlook for cash doesn’t alter that significantly. Almost 12 years on from bank rate being cut to the emergency level of 0.5%, we’re still stuck in the lower for longer doldrums."

These sentiments illustrate the Bank of England’s intentions to wait for Brexit talks to conclude, before they make any significant decisions, and thus individuals will have to wait for further updates on the situation in the New Year.

The good news for landlords is that, going into 2021, buy to let lenders are not being pressed to increase mortgages rates upwards by the Base Rate.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.