Published: Sat, February 09, 2019
Business | By Eloise Houston

BOE cuts forecasts, says Brexit damage to economy has risen

BOE cuts forecasts, says Brexit damage to economy has risen

The Bank said that endless uncertainty over the Brexit negotiations meant companies were hunkering down and cutting investment.

"The minutes noted the Bank still sees the need for higher interest rates in the coming years, but its growth forecasts were cut to 1.2% this year (from 1.7%) and to 1.5% next year (1.7%)".

Mumbai: The Reserve Bank of India (RBI) on Thursday unexpectedly lowered interest rates and as anticipated, shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.

The Bank of England expects the United Kingdom economy to grow at its weakest pace in a decade this year and warned that there was a 25% chance of a recession.

"Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook", the bank said in a statement.

Bank of England governor Mark Carney warned that Britain was "not prepared" for a no-deal Brexit.

The gloomy growth outlook came as policymakers on the nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates unchanged at 0.75%.

Carney said that the possibility of a "no-deal" Brexit has gone up since the aftermath of the Brexit vote in 2016, when it was considered unlikely.

Under our base case scenario of a delayed, albeit successful and somewhat orderly European Union exit, we still think that the Bank of England will raise interest rates towards the end of this year.

In November the BoE had forecast 2019 growth of 1.7 per cent.

The pound initially tumbled after the report, but later recovered to stand 0.4% higher at 1.298 U.S. dollars and 0.4% up at 1.14 euros.

Officials said that potential supply growth is now a "little below" the 1.5 per cent previously estimated.

The BoE saw a fall this year in business investment and housebuilding, which have been weak in the run-up to Brexit, as well as a halving of the growth rate in exports, reflecting the global slowdown.

But it said the growth hit was expected to be short-lived, with a recovery in expansion later in 2019 - though this is based on a Brexit deal being reached by March 29.

Statistics showed the economy expanded only 7.1 per cent on-year in July-September, down from 8.2 percent in the previous quarter.

It said the United Kingdom economy is set to grow by just 1.2 percent this year instead of 1.7 percent as predicted just three months ago.

"Given core-inflation is already quite high, we see headline inflation rising sharply towards the end of the year".

The year over year change in consumer price inflation dropped from 3.4 percent in October to 2.2 percent in December, its lowest level in eighteen months.

In its minutes, the Bank continued to stress that interest rate rises were likely to be needed "at a gradual and to a limited extent" to bring inflation back to target by 2022.

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