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Economy

Bank of England keeps interest rates steady, issues warning about Brexit

Bank of England kept U.K. interest rates at 0.75% but warned that the country's economic outlook depends on the nature of the U.K.'s exit from the European Union.

The bank's monetary policy committee voted unanimously at its meeting Oct. 31, to maintain the rate.

Mark Carney, Bank of England governor, said at a news conference Thursday that the economic outlook depends "significantly" on the nature of Brexit, citing the form of new trading arrangements between the EU and the U.K.; whether the transition to those arrangements is abrupt or smooth; and how households, businesses and financial markets respond.

Mr. Carney said there are a number of transitions underway that will impact the U.K. economy and the stance of monetary policy, but that the most important is the adjustment to "a new, and as yet uncertain, economic relationship with the European Union."

The MPC's forecasts are based on an assumption of a smooth transition. "As the deadline for concluding the withdrawal agreement approaches, the expectations of households and businesses are diverging somewhat from this base case assumption," Mr. Carney said. He added that households appear more sanguine, while businesses are more wary.

And "financial markets are hedging their bets against Brexit downsides, with sterling risk reversals building, despite sterling being already some 15% below its pre-referendum peak," he said.

Mr. Carney also warned of monetary policy tightening should the worst — although unlikely — happen. "There are scenarios where policy would need to be tightened in the event of a no deal, no transition, so-called disorderly Brexit — but I would stress that is not the view of the (monetary policy) committee that that is the most likely scenario."