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Bank cuts growth forecast amid Brexit worries | Bank cuts growth forecast amid Brexit worries |
(35 minutes later) | |
The Bank of England has cut its UK growth forecast and warned a lack of Brexit clarity is hitting the economy. | The Bank of England has cut its UK growth forecast and warned a lack of Brexit clarity is hitting the economy. |
The Bank said uncertainty over the UK's departure from the EU had "intensified considerably" over the past month. | The Bank said uncertainty over the UK's departure from the EU had "intensified considerably" over the past month. |
Against a backdrop of weaker global growth, the Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.75%. | Against a backdrop of weaker global growth, the Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.75%. |
It said the economy was likely to grow by 0.2% in the final quarter of 2018, down from an earlier forecast of 0.3%. | It said the economy was likely to grow by 0.2% in the final quarter of 2018, down from an earlier forecast of 0.3%. |
That follows growth of 0.6% in the previous quarter. | That follows growth of 0.6% in the previous quarter. |
The Bank expects slower economic growth to continue into 2019. | The Bank expects slower economic growth to continue into 2019. |
What next for rates? | What next for rates? |
The Bank of England last raised interest rates in August to 0.75%, but has been reluctant to push them higher while uncertainty remains over Brexit. | The Bank of England last raised interest rates in August to 0.75%, but has been reluctant to push them higher while uncertainty remains over Brexit. |
But if there is a deal, economists say the Bank is likely to make a move. | |
"We continue to think that the MPC won't wait for signs of a recovery to emerge in the data and will raise Bank Rate to 1.0% in May," said Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics. | |
Paul Dales, Chief UK Economist at Capital Economics, sees a sharp increase in rates, if there is a "smooth" Brexit outcome. | |
"Our money is currently on a faster rebound in GDP growth prompting the Bank to raise rates by 0.25% three times next year and two more times in 2020," he said. | |
The UK government's decision to abandon a vote on the Brexit deal last week dragged down UK share prices and triggered a drop in the value of the pound. | The UK government's decision to abandon a vote on the Brexit deal last week dragged down UK share prices and triggered a drop in the value of the pound. |
Commercial bank funding costs had also "risen sharply", the Bank noted, which could push up consumer borrowing costs. | Commercial bank funding costs had also "risen sharply", the Bank noted, which could push up consumer borrowing costs. |
The Bank said the outlook for pay was brighter, with wages growing faster than policymakers expected in November. | The Bank said the outlook for pay was brighter, with wages growing faster than policymakers expected in November. |
Measures announced in the Budget at the end of October, including a multi-billion pound funding boost for the NHS, would lift growth by 0.3% over the next few years, the Bank said. | Measures announced in the Budget at the end of October, including a multi-billion pound funding boost for the NHS, would lift growth by 0.3% over the next few years, the Bank said. |
Lower oil prices were likely to push inflation below the Bank's 2% target by the end of the year. Policymakers expect inflation to remain there into the start of 2019. | Lower oil prices were likely to push inflation below the Bank's 2% target by the end of the year. Policymakers expect inflation to remain there into the start of 2019. |
A separate Bank survey suggested that business services firms, including law and accountancy companies, believed activity could slow "sharply" in the event of a no-deal Brexit. | A separate Bank survey suggested that business services firms, including law and accountancy companies, believed activity could slow "sharply" in the event of a no-deal Brexit. |
The survey also indicated that Black Friday sales had "failed to meet many retailers' expectations" as cautious consumers kept spending down ahead of Christmas. | The survey also indicated that Black Friday sales had "failed to meet many retailers' expectations" as cautious consumers kept spending down ahead of Christmas. |
While business surveys suggest weak growth in the months ahead, the Bank noted that it was "it was possible that these surveys might be overstating the extent of any slowing". | While business surveys suggest weak growth in the months ahead, the Bank noted that it was "it was possible that these surveys might be overstating the extent of any slowing". |
Analysis: | Analysis: |
By Andy Verity, BBC economics correspondent | By Andy Verity, BBC economics correspondent |
In the latest from the Bank of England's interest rate setters, it's not what they did that's eye-catching - interest rates stayed the same. | In the latest from the Bank of England's interest rate setters, it's not what they did that's eye-catching - interest rates stayed the same. |
It's what they said. | It's what they said. |
Some of it you already knew. "Brexit uncertainties have intensified considerably since the last meeting." | Some of it you already knew. "Brexit uncertainties have intensified considerably since the last meeting." |
You probably also knew sterling has depreciated further and is more volatile. | You probably also knew sterling has depreciated further and is more volatile. |
What you might not have known is that it's costing banks more to fund themselves - i.e. to borrow cash - and it's also costing corporations more in interest to borrow funds from international investors. | What you might not have known is that it's costing banks more to fund themselves - i.e. to borrow cash - and it's also costing corporations more in interest to borrow funds from international investors. |
Businesses are investing less and it's likely to stay that way for months. | Businesses are investing less and it's likely to stay that way for months. |
The MPC has cut its forecast of economic growth for the fourth quarter of 2018 from 0.3% to 0.2%. And while inflation may dip below 2% in the coming months, beyond that inflation expectations are higher based on higher pay rises. | The MPC has cut its forecast of economic growth for the fourth quarter of 2018 from 0.3% to 0.2%. And while inflation may dip below 2% in the coming months, beyond that inflation expectations are higher based on higher pay rises. |
Assuming a smooth Brexit, "an ongoing tightening of monetary policy [rises in interest rates]… at a gradual pace and to a limited extent, would be appropriate". | Assuming a smooth Brexit, "an ongoing tightening of monetary policy [rises in interest rates]… at a gradual pace and to a limited extent, would be appropriate". |
But these days that assumption is in serious doubt - and rates may have to be cut. | But these days that assumption is in serious doubt - and rates may have to be cut. |
To those who accuse the Bank of England of exaggerating the potential harm of a no-deal Brexit, the message is clear. "Bah, Humbug!" | To those who accuse the Bank of England of exaggerating the potential harm of a no-deal Brexit, the message is clear. "Bah, Humbug!" |