ONDON: The Bank of England looks set to pass a post-financial crisis milestone next week by finally raising interest rates above their emergency levels set more than nine years ago. But with a potentially messy Brexit nearing, Governor Mark Carney may sound cautious about the pace of further moves away from the BoE’s still-powerful stimulus programme. In March 2009, when the financial crisis was raging, the BoE slashed its benchmark rate to 0.5 percent to stave off the risk of a depression. Bank Rate has sat there since, apart from a 15-month period after the shock referendum vote in 2016 for Britain to leave the European Union, when it was cut again to 0.25 percent – the lowest in the three-century history of the central bank. Now, Carney and his colleagues are expected to nudge rates up to 0.75 percent on Aug. 2, going beyond last November’s increase back up to 0.5 percent. However, taking rates above their crisis levels will not be a vote of confidence in the world’s fifth-biggest economy.
Britain has gone from having the strongest growth of the Group of Seven rich nations to being one of the slowest after the Brexit decision.
The terms of Britain’s future relationship with the EU are still unclear, eight months before Brexit, and Prime Minister Theresa May could yet be unseated by her own Conservative Party which is split on how close the country should remain to the bloc.
At the same time, consumers are still feeling a squeeze on their spending power. And inflation, while above the BoE’s 2 percent target at 2.4 percent, has been weaker than expected.
Nonetheless, the BoE says the economy cannot grow even at its current sluggish rate without causing too much inflation, given Britain’s chronically weak productivity growth.