The Bank of England has acknowledged the glaring mismatch between its base-case scenario that Brexit will go smoothly and growing bets by investors that Britain’s departure from the European Union is likely to be messy.
The statement reflects how BOE Governor Mark Carney and his fellow interest rate-setters are struggling to convince investors that borrowing costs are likely to rise any time soon, due to the deep uncertainty about how Brexit will play out.The BOE, reflecting the stated aim of Prime Minister Theresa May’s government to reach a transition deal, has not included the possibility of an abrupt shift to World Trade Organization rules for trade with the EU in its central case assumptions.
Many economists expect no rate hike for more than a year. Some investors are pricing in a chance of a cut: the money market curve now implies a roughly 25 per cent chance of a 25 basis-point rate cut by the end of 2019, analysts at RBC Capital Markets said.