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Bank of England is Predicted to Keep Interest Rate Low in Fear of Brexit

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March 17
7:52 AM 2016

As the possibility of Britain to exit European Union is taking center stage, Bank of England British is predicted to keep its key interest rate low. Governor Mark Carney warned that Brexit will damage British financial stability. While pro-Brexit lawmakers accused Carney of bias regarding the issue.

Economists predicted Bank of England will keep key interest rates level as fear of Brexit is imminent. The British central bank will publish its interest rate decision on Thursday afternoon, after the Monetary Policy Committee (MPC) meeting. Following last month's MPC meeting there are many factors fluctuated and making this month's decision to be a delicate one.

As uncertainties over Brexit issue taking the center stage, many investors are taking sideline and sending poundsterling down and increasing volatility. However, weak poundsterling help British exporters and ease the inflation which in noted at 0.3% in January, way below 2% target. Although inflation is low, but currency volatility can weaken confidence and complicate investment decisions.

Following the low inflation, Chief U.K. economist at Societe Generale SA Brian Hilliard told Bloomberg, "Since last month's meeting, global financial markets have calmed down and I would expect that to be acknowledged in the MPC statement and minutes." In term of interest rate he predicted, "Inflation trends remain benign and the committee will feel under no pressure to hike this year."

Last week, the Bank of England governor Mark Carney reiterated his stance regarding Brexit. In a session with parliament on Tuesday March 8, Carney said that voting to leave the European Union will result a biggest financial risk for Britain. Carney was accompanied by Deputy Governor Jon Cunliffe in a session that lasted almost three hours.

Pro-Brexit Member of Parliaments accused Carney of being bias in his view. Reuters reported a Conservative and eurosceptic MP Jacob Rees-Mogg commented on Carney, "I am concerned that in the evidence you've given you've continued the tendency of the letter (sent earlier to members of parliament) and your speech to pick on the positives of the European Union and ignore the negatives."

Head market analyst at Monex Europe Ranko Berich told The Telegraph regarding the meeting between Bank of England and British Parliament, "Carney and Cunliffe did their best to make it clear that the BoE was not advocating for Britain to leave or remain. Ultimately, however, in the Bank's assessment, the Brexit represents a 'material financial stability risk' of the sort that FX markets are currently pricing in. This is only likely to increase in the run-up to the referendum, meaning the reprieve sterling is currently enjoying may well be temporary."

Economist predicted that British central bank will keep its interest rate low as the Brexit issues take center stage. Previously, Bank of England Governor Mark Carney has spoken to parliament regarding Brexit effect to British financial stability.

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