Bank of England says no-deal Brexit could force near-zero interest rates

The Bank of England (BoE) admitted that in the event of a no-deal Brexit it may have to cut interest rates to near-zero to support the UK economy, according senior BoE official Gertjan Vlieghe.

Vlieghe gave this warning during a speech at Thomson Reuters in London, with the official stating it is unclear how much time would have to pass before the BoE could raise rates again of a no-deal Brexit.

No-deal Brexit more likely as Conservative leadership race nears end

With the Conservative leadership race down to just two candidates in the form of Boris Johnson and Jeremy Hunt, the likelihood of a no-deal Brexit occurring has increased significantly as both have made it clear they are prepared to leave EU with or without a deal.

Because of this prospect, Vlieghe went on to tell onlookers how the BoE must alter its forecasting process and align it closer to other central banks.

As it stands, the BoE makes its forecasts based on interest rate futures in financial markets, which Vlieghe argued is unnecessarily complicated when conveying its predictions to businesses, investors and consumers.

BoE will cut rates to ease no-deal Brexit pressure

The BoE official also said that the central bank will likely reduce its benchmark rate, which stands at 0.75%, if the UK leaves without a deal in order to ease the impact of rising inflation and the depreciation of the pound.

‘On balance I think it is more likely that I would move to cut Bank Rate towards the effective lower bound of close to 0% in the event of a no-deal scenario,’ Vlieghe said.

'It is highly uncertain when I would want to reverse these interest rate cuts,' he added.