The Bank of England warned that damage to the economy from Brexit has increased as it cut its growth forecast and predicted a dramatic slump in investment.
As the U.K. approaches the March 29 deadline to leave the European Union without yet having a deal for a new relationship settled, businesses are slashing spending and consumers are growing more worried.
The BOE said that “uncertainty had intensified,” and now forecasts 1.2 percent growth this year, down from 1.7 percent predicted three months ago, the biggest downgrade since the 2016 referendum. The global backdrop has also weakened, as highlighted in the European Commission’s sweeping cuts to the euro-area economic outlook on Thursday.
The BOE’s decision follows recent dovish statements from the U.S. Federal Reserve and European Central Bank. U.K. officials noted the impact of China’s slowdown and said trade wasn’t contributing as much to growth as they expected.
The forecasts came alongside the latest policy decision by the Monetary Policy Committee, led by Governor Mark Carney. It voted 9-0 to hold the key interest rate at 0.75 percent, as predicted by all economists in a Bloomberg survey. The bank last lifted the rate in August.
With Brexit hanging over the outlook, the bank said that its forecasts would need to be updated “once greater clarity emerged about the nature of EU withdrawal.” Acknowledging the huge impact of uncertainty, it ran an analysis showing that less uncertainty would lead to much stronger growth -- 1.6 percent this year and 2.2 percent in 2020.
Source : Bloomberg