Economics: Bank of England says risk of disorderly “Brexit” reduced by progress in talks

Last week’s breakthrough in “Brexit” talks has reduced the risk of Britain leaving the European Union in a disorderly way and may boost economic confidence, the Bank of England said on Thursday after it left interest rates unchanged.

Bank policymakers voted unanimously to keep rates at 0.50% as expected, a month after raising them for the first time in more than a decade.

Domestic economic data suggested the economy might be slowing slightly into the end of the year, but Chancellor of the Exchequer Philip Hammond’s annual Budget in November should modestly boost growth over the next few years, and “Brexit” talks appeared to be moving forward, the central bank said.

Inflation hit its highest level in nearly six years in November at 3.1%, and the jobless rate remains at the lowest since 1975, even though the outlook for growth is soft. Both financial markets and economists mostly expect Bank officials will wait nearly a year before raising interest rates again.

The “very gradual” pace of tightening signalled by the Bank last month reflects both uncertainty about the economic impact of ongoing talks to leave the EU, as well as weak underlying inflation pressures that belie the high headline rate.

Figures yesterday pointed to the weakest housing market since 2013 but retail sales data on Thursday were unexpectedly strong, as shoppers pounced on Black Friday bargains.

The Bank said that inflation was now close to its peak and reiterated its view that above-target price growth is almost all due to sterling’s fall after June 2016’s “Brexit” vote. It expects inflation to fall slowly next year.