The bank’s pessimistic view of Brexit and its impact on the UK economy could see it allow inflation to continue to climb above the target of 2% to avoid any risk of monetary tightening according to Leaviss, head of retail fixed interest at M&G Investments.
Interest rates have been held at an historically low level of 0.25% since August 2016 as the central bank attempted to increase inflation and support economic growth alongside a multi-billion pound programme of quantitative easing.
Leaviss said: “The uncertainty that the Brexit negotiations are likely to bring to hiring and investment intentions in the short term could mean that the Bank’s MPC faces difficult decisions: does it hike rates to bring inflation down and cool consumption, or will it worry more about weaker underlying growth and investment?”
The second stage of the negotiations between the UK and the EU will focus on the future relationship between the two, and it is that deal that will peak the interest of financial markets the most.
“Any signs of an acrimonious divorce, with a hardening in rhetoric on both sides, would likely result in a deeper impact on demand and possibly a recession,” Leaviss said, adding the future of the UK depended on the success trading relationships.
