‘Brutal’ scenario of self-inflicted UK interest rate hike if no deal, BoE warns

A no-deal Brexit scenario would prompt the central bank to raise interest rates by 150 basis points within six months, Spencer Dale, Bank of England’s chief economist, told the Guardian. It could then increase…

‘Brutal’ scenario of self-inflicted UK interest rate hike if no deal, BoE warns

A no-deal Brexit scenario would prompt the central bank to raise interest rates by 150 basis points within six months, Spencer Dale, Bank of England’s chief economist, told the Guardian. It could then increase them another 75 basis points from there. The Bank of England currently has a policy of 0.5 percent interest rates. Mr Dale also suggested the possibility of a 0.5 percent rise before 2020. His comments will fuel concerns of a no-deal Brexit occurring at all.

Mr Dale described the threat of a “brutal scenario” of inflation returning to “very high levels” in an interview with the Guardian. On the future growth prospects of the economy, he added: “We see a potential for a soft Brexit, which could actually be a good thing.” But he admitted: “The speed of the recovery on the domestic side is not quite as fast as that of the external side.” He also said the “swiftest way” to deal with inflation was to hike interest rates.

Mr Dale said the Financial Conduct Authority and the Financial Policy Committee would be able to work alongside the Bank of England if there was a change of circumstances and the UK crashed out of the EU without a deal. “We want to avoid the worst outcome of us having to do a no-deal in the UK, but clearly we do need to change the policy settings in the future if there is a shift in the economic balance,” he said. The Bank of England has previously suggested that a no-deal scenario could see inflation push up towards 5 percent in 2020.

Even if the economy has indeed grown at a very slow pace over the past few years, it could easily pick up again now that Brexit worries have eased off for the time being.

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