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The Deal on Brexit Could Speed Up the Increase in Interest Rate

The Bank of England has kept the interest rates unchanged at 0.75% during this month. Despite this stance, their latest forecasts suggest that interest rates can rise to 1.5% in the span of the next three years. The Bank said that the uncertain over Brexit was not allowing certain firms to invest freely. The Governor, Mark Carney said that smooth exit for the United Kingdom from the European Union could well lead to a rebound in that investment. Mr Carney said that there is an expectation of seeing a rebound in demand. Firms are taking a very cautious approach at the moment. This is especially because there is maximum uncertainty around and the Bank of England has some idea as to what is getting held back. Hence, the Bank expects a rebound in investment to take place.

Now, there are some economists, who think otherwise. They feel that The Bank of England may require being a lot more aggressive on interest rates. Ruth Gregory is an economist from the UK at Capital Economics. He feels that if the United Kingdom happens to strike a deal soon enough, interest rates could rise to three times the current figure in 2019. Pantheon Macroeconomics’ Samuel Tombs is betting on seeing two round of interest rate increase next year and he feels that it is a very good bet. The Bank even made note of a few things. They said that UK’s withdrawal in an abrupt manner could well result in causing delays at borders, disrupt the supply chain management and real rapid and costly shifts in the types of production. Thus, all these could severely impair the productive capacity the business in the UK.

The Bank came up with these views as their Monetary Policy Committee managed to vote 9-0 in favor of leaving rates unchanged at 0.75%. It was back in the month of August when the Bank had raised the interest rates by reacting to a really strong data on the economy. The recent decision to keep interest rates unchanged will serve as a relief to around 3.5 million mortgage holders, who keep track of interest rates. On the other hand, the ones who save will be highly disappointed.

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