The BoE slashed this year’s growth forecast to 1.2 percent – the lowest since 2009, when the economy slumped 4.2 percent at the height of the recession. This shock downgrade compares with 1.7 percent predicted in November, while the Bank has also cut its outlook for 2020 to 1.5 percent. The gloomy outlook came as policymakers at the nine-strong Monetary Policy Committee voted unanimously to keep interest rates unchanged at 0.75 percent.
The Bank said growth likely halved to 0.3 percent in the final quarter of last year – down from 0.6 percent in the previous three month period and estimated it will fall again to 0.2 percent in the first quarter of 2019.
This dramatic slowdown is being driven by sharp falls in business investment, a drop in consumer spending and areas of weakness in the UK housing market.
The Bank added a bigger-than-expected slump in the global economy is also impacting UK growth.
Mark Carney warned the UK economy is unprepared for a no-deal Brexit
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
Bank of England Governor Mark Carney pointed towards uncertainties around Brexit causing “short-term volatility” and a “series of tensions” in the economy and businesses.
He said: “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.”
Mr Carney added: “Given the wide range of potential scenarios and the various paths to them, it would be remarkable if the current levels of sterling and other uk financial asset prices were consistent with the outcome that finally emerges.
“Uncertainty around negotiations has obviously intensified since November and is now weighing more heavily on activity, predominantly lower business investment and tighter financial conditions
The Bank’s quarterly inflation report predicted growth could be 1.5 percent higher over the next three years at 1.6 percent in 2019 – if a favourable deal is reached between the UK and European Union.
But the Bank also warned growth could plunge 0.8 percent this year if Brexit uncertainty isn’t resolved and financial conditions tighten.
At the end of last year, the BoE warned a no-deal Brexit and a sudden loss of confidence among foreign investors could hammer the economy more than the global fianncial crisis did.
Mark Carney warned Brexit uncertainty is ‘creating a series of tensions in the economy’
The Bank said it conducted a survey of more than 200 businesses that only half had started preparing for a no-deal Brexit.
Following the gloomy forecasts, Pound Sterling dropped to 1.1352 against the euro, but it has since risen slightly to 1.1367 at 12.46pm.
Earlier this morning, it was 1.1373 against the euro – marginally down from 1.1380 at around 7am.
The pound also dropped against the US dollar to 1.2861, after trading at 1.290 earlier this morning.
It has since bounced back slighting as of 12.57pm is 1.2899.
The Bank’s quarterly inflation report also warned interest rates may not rise until the second half of 2020 as fears around Brexit have seen businesses freeze spending, while consumer confidence has “weakened significantly”.
In minutes of the latest rates decision, the Bank said: “Since the Committee’s previous meeting, key parts of the EU withdrawal process had remained unresolved and uncertainty had intensified.
“Businesses had appeared increasingly to be responding to Brexit-related uncertainties and there were signs that those uncertainties might also be affecting household spending and saving decisions.”
Theresa May met European Commission President Jean-Claude Juncker in Brussels today
CBI chief economist Rain Newton-Smith warned it is no “crunch time” as the economy is “seizing up” from Brexit ncertainty, adding the Bank of England’s forecasts show just how significant this impact could be if it continues.
She said: “It’s now crunch time – a no-deal scenario must be taken off the table because the economy is seizing up from uncertainty.
“The Bank’s forecasts, when put together with recent business surveys, illustrate the harmful impact on the economy the longer that this goes on.
“Brexit uncertainty has kept interest rates on hold this month, and the near-term outlook for the UK economy is also weaker.
“However, in the event of a smooth Brexit, the Bank expect a lift to economic growth and business investment further ahead, as greater clarity unlocks pent-up demand.”