Bank of England says 'nature' of Brexit will guide path for economy

James Sillars, business reporter

The Bank of England has warned that the "nature and timing" of the UK's departure from the EU will determine the country’s economic outlook.

In its final meeting before the scheduled Brexit deadline, the Bank's monetary policy committee (MPC) voted unanimously to keep interest rates on hold at 0.75% - repeating that the next movement could be either up or down in the event of a no-deal scenario.

It said: "The economic outlook will continue to depend significantly on the nature and timing of the EU withdrawal."

Its message on future rate movements is a consequence of the possible need to stimulate activity through a rate cut or move the other way to curb any surge in inflation.

The announcements were made as it published the findings of a survey - of just under 300 firms - showing 80% felt as ready as they could be for a no-deal outcome.

That was up from a figure of 50% in January.

It issued the update hours after the Federation of Small Businesses told Sky News its members lacked the resources for no-deal Brexit planning and as Theresa May prepared to plead for a "Brextension" in Brussels.

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In the minutes of the MPC's meeting, the bank said any short delay may see a "larger immediate reduction" in business investment because of continuing uncertainty.

A longer delay, it added, may see less of an impact as firms "judge it too costly to wait for any resolution to become apparent".

However, it increased its forecast for economic growth in the first quarter of the year to 0.3% from 0.2%.

The Bank cited a rebound in consumer spending following a tough final quarter of 2018.

The Office for National Statistics had earlier reported a 0.4% rise in retail sales during February.

Many economists had expected a contraction.

Howard Archer, chief economic adviser to the EY ITEM Club, said of the possible path for rates: "Recent comments by Mark Carney have suggested that he thinks that it is most likely that the economy would need stimulus if there is a 'no deal Brexit, thereby indicating that an interest rate cut would be more likely than a hike.

"Recent comments by MPC members Silvana Tenreyro and Gertjan Vlieghe have suggested that they believe that interest rates would be more likely to fall than rise in the event of a 'no deal' Brexit.

"However, another MPC member Michael Saunders is seemingly retaining a balanced view.

"We strongly lean towards the view that interest rates would be far more likely to be cut than increased if there is eventually a no deal Brexit."