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BoE warns of heightened prospect of a no-deal Brexit

London

THE prospect of Britain crashing out of the European Union without a deal has risen since last month, the Bank of England warned on Thursday, as it kept interest rates unchanged.

"Domestically, the perceived likelihood of a no-deal Brexit has risen" since May, the BoE said in a statement after its Monetary Policy Committee (MPC) kept the central bank's main borrowing cost at 0.75 per cent.

"As expected, recent UK data have been volatile, in large part due to Brexit-related effects on financial markets and businesses."

The BoE said the UK's "economic outlook will continue to depend significantly on the nature and timing of EU withdrawal".

Britain is scheduled to leave the bloc on Oct 31, when it will lose access to major markets covered by EU trade agreements. Without a Brexit deal between London and Brussels, the UK will default to "third country" status with the EU, with trade relations run on World Trade Organization rules.

The MPC on Thursday added that the prospect of future UK rate hikes had also lessened because of Brexit. "Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate," it said.

Analysts do not expect a rise in British interest rates any time soon, also owing to falling UK annual inflation and against a background of doveish tones from the Federal Reserve and European Central Bank in recent days on their outlooks for US and eurozone borrowing costs.

"Given the drop in (UK) GDP in April and the fall in inflation back to target in May, there was never much chance that the MPC would raise interest rates from 0.75 per cent today," noted Thomas Pugh, UK economist at Capital Economics research group. AFP