UK: interest rates remain at record low in the wake of Brexit vote
The Monetary Policy Committee (MPC) decided to remain the Bank of England rate at the level of 2,5% – at the meeting ending on 2 August 2017. It is the lowest interest rate level since February 1952. According to the MPC’s forecast presented in the August Inflation Report, the GDP growth in the United Kingdom will remain sluggish in the near future mainly due to squeeze on households’ real income and its negative influence on consumption and despite the fact that net trade and business investment is firming up.
Weak GDP growth due to Brexit vote?
In the second quarter of 2017 the Britain’s economy has grown by only 0,3% and out of the main sectors of the UK economy (agriculture, construction / production, services) only services sector was bigger in June than at the end of the first quarter – with growth of 0,5%. Despite the government officials play down speculations around the reasons behind the GDP growth slowdown, number of experts attribute it to Britain’s vote to leave the European Union.
UK inflation expected to grow
The CPI inflation in the UK has grown from 2,3% in March to 2,6% in June and is projected by MPC to grow to 3% by October 2017. According to the MPC, the inflation overshoot over the 2% target results mainly from the fact that weakening sterling continues to pass through to consumer prices. As the sterling falls starting from the EU referendum, the higher imported goods’ prices create inflationary pressure in the UK economy.
No tax haven in Britain
Despite the approaching leave of the European Union, the UK government officials cut speculations on possibility of Britain becoming tax haven following the Brexit. Britain’s Finance Minister Philip Hammond claims in his interview to LeMonde [quoted after the Euronews] that the amount of tax UK raises is within average and that the British government’s intention is to remain at that level.
“Even after we have left the EU, the United Kingdom will keep a social, economic and cultural model that will be recognizably European” – he said.