Skip to main content

Brexit uncertainty to keep MPC in state of inertia

Brexit uncertainty has driven sterling lower in recent months and is likely to mean that the Monetary Policy Committee (MPC) keeps interest rates on hold for some time. But provided a Brexit deal is agreed, we still think that rates will rise at a faster pace than markets expect over the next two years, pushing up the 10-year gilt yield to 2% and paving the way for a rebound in sterling to $1.45/£ and around €1.20/£ by the end of 2019. That said, limited progress in the Brexit negotiations and divisions in the Conservative Party have raised the chances of the UK leaving the EU without a deal in March 2019. In this scenario, we would expect any further tightening of monetary policy to be put on hold, and interest rates could even be cut. The pound would fall further, perhaps to $1.20/£ and gilts would rally amid a “flight to safety”.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services


Get access