Bank says Brexit worries may lead to base rate reduction in spring

Multi-national financial institution UBS says there could be a cut in the Bank of England base rate as early as May if jitters set in about a possible ‘hard’ or No Deal Brexit.

The Bank’s Monetary Policy Committee recently kept base rate on hold, albeit with two members voting for a cut. 

The UBS global real estate report for 2020 says: “The MPC reiterated its readiness to adjust policy in either direction including a possible rate cut ‘to reinforce the expected recovery in UK growth and inflation’ if either global activity fails to stabilise or if ‘Brexit uncertainties remain entrenched.’”

UBS then adds: “We expect the MPC to cut in May as probability of hard Brexit lingers in 2020.”

At the end of last summer the minutes from the MPC - which meets monthly to set the base rate on which the costs of most mortgages and house loans are based - said the base rate could increase in the medium term if there was an orderly Brexit.

“Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand was likely to build in the medium term. Were that to occur, the committee judged that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the two per cent target” the minutes said. 

However, there now remain uncertainties over Britain’s trading relationship with the EU and others at the end of the one year transition period following the expected departure from the EU at the end of this month.