BoE forecasts decade low in UK growth
(8 February 2019 – United Kingdom) The Bank of England (BoE) asserts that the United Kingdom (UK) faces its weakest economic growth in over a decade, placing the blame squarely on Brexit uncertainty and slowing global economic growth.
The Bank's policymakers voted unanimously to keep rates at 0.75 percent. The UK is scheduled to leave the European Union (EU) on 29 March 2019. The BoE has previously stated that a worst-case ‘hard’ Brexit outcome where no deal for a smooth transition period is established and suppressed foreign direct investment confidence could dent the economy more deeply than the 2008 Global Financial Crisis (GFC).
The UK central bank cut its 2019 economic growth forecast to 1.2 percent from the previous November 2018 estimate of 1.7 percent. The BoE saw a fall this year in business investment and new house construction as well export growth halving. The main reason the BoE believes underlying inflation pressures will expand is faster wage growth after Britain's unemployment rate hit its lowest level in nearly half a century. The BoE kept its wage forecasts largely unchanged with earnings rising by more than 3 per cent a year over the next three years. A rate rise by the BoE would be out of step with other global reserve banks. Last week the US Federal Reserve inferred that its three-year rate rising trend may be ending, the Reserve Bank of India (RBI) cut borrowing costs and the Reserve Bank of Australia (RBA) suggested a cut to record low official cash rates below 1.5 percent could be more likely than a rate rise, not predicted to at least mid-2020.
"The fog of Brexit is causing short term volatility in the economic data, and more fundamentally, it is creating a series of tensions in the economy, tensions for business. Although many companies are stepping up their contingency planning, the economy as a whole is still not yet prepared for a no-deal, no transition exit” said BoE Governor Mark Carney.