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Bank Of England Holds Rates, Warns Of No-Deal Brexit Hit To Growth

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The Bank of England left its monetary policy unchanged amid the heightened uncertainty as the October 31 deadline for the UK's exit from the European Union looms, and warned that the global slowdown and a no-deal Brexit would hurt the economy severely.

The Monetary Policy Committee, led by Governor Mark Carney, on Thursday, unanimously decided to hold the bank rate at 0.75 percent, the stock of corporate bond purchases at GBP 10 billion and government bond purchases at GBP 435 billion, in the final policy session ahead of the October 31 Brexit deadline.

Policymakers viewed that the current stance of monetary policy was appropriate.

Brexit-related developments are making UK economic data more volatile, the bank said. The economy is forecast to grow 0.2 percent in the third quarter and inflation is expected to remain slightly below 2 percent target in the near term.

According to the minutes of the session, the labor market is not expected to tighten further. Political events could lead to a further period of entrenched uncertainty.

The longer those uncertainties persisted, the more likely that demand growth would remain below potential which in turn would reduce domestically generated inflationary pressures, the bank said.

The MPC observed that increased uncertainty about the nature of Brexit meant that the economy could follow a wide range of paths over coming years.

The appropriate response of monetary policy would depend on the balance of the effects of Brexit on demand, supply and the sterling exchange rate, the bank added.

In the event of greater clarity that the economy is on a path to a smooth Brexit, margin of excess demand is likely to build in the near term, which would call for a rate hike.

In case of a no-deal Brexit, the bank said the exchange rate would probably fall, CPI inflation rise and GDP growth slow. The bank repeated that the policy response would not be automatic and could be in either direction.

The major counterparts US Federal Reserve and the European Central Bank resorted to loosening its policy. On Wednesday, the Fed reduced the rate by a quarter-point citing murky outlook. The ECB had unveiled a wide range of measures including rate reduction last week.

Thomas Pugh, an economist at Capital Economics, said though the tone of the BoE minutes was slightly more dovish than in August, the MPC is not likely to follow in the footsteps of the Fed and the ECB and loosen policy unless there is a no deal Brexit.

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