Brexit: UK economy may see boost after Theresa May’s breakthrough deal in Brussels, says Bank of England

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Policymakers at the Bank of England believe the risk of a “no-deal” Brexit has been reduced by Theresa May’s Brussels agreement last week – and that this breakthrough may boost UK economic confidence in the coming months.

The view was relayed in the minutes of the latest meeting of the Bank’s rate-setting Monetary Policy Committee (MPC).

The nine-person MPC voted unanimously, as expected by the City of London, to keep rates on hold at 0.5 per cent, having raised them in November for the first time in a decade.

The minutes reflected the MPC’s view that the Brussels progress “would reduce the likelihood of a disorderly exit, and was likely to support household and corporate confidence”.

The minutes added that policymakers would give “more detailed consideration” to the economic implications in the run-up to its next round of economic forecasts due in February.

The European Union agreed last Friday that the Article 50 talks with the UK had delivered “sufficient progress” on key areas of negotiation, including EU citizens’ rights, the Brexit divorce bill and the Irish border.

This should open the way for vital talks between the UK and the EU to hammer out a trade and regulatory transition deal to kick in immediately after Brexit in March 2019.

UK economic growth is projected by the Treasury’s official forecaster to have slowed to 1.5 per cent in 2017, down from 1.8 per cent in 2016, and to dip further to 1.4 per cent in 2018 and 1.3 per cent in 2019.

Growth has slowed this year as firms have frozen investment due to Brexit-related uncertainty and inflation, stemming from the slump in the pound after the Brexit vote, which has eaten into workers’ real wages.

Various surveys have also shown a decline in consumer confidence over the last year.

Inflation unexpectedly rose to 3.1 per cent in November, according to the Office for National Statistics, more than one percentage point above the Bank’s official 2 per cent target.

This will require the Bank’s Governor, Mark Carney, to write a formal letter of explanation to the Chancellor.