In its latest quarterly health check, the Bank cut its growth forecast for 2019 from 1.7% to 1.2%, blaming a slowing global economy as well as Brexit uncertainty for the sharp downward revision, and said there was a 25% chance of a recession this year.
Threadneedle Street said its gloomier forecast assumed the UK’s departure from the EU in seven weeks goes smoothly. If the prediction comes true, it would be the slowest growth since the economy contracted by 4.2% in 2009, during the financial crisis.
Mark Carney, the Bank’s governor, said: “The fog of Brexit is causing short-term volatility in the economic data and, more fundamentally, it’s creating a series of tensions.”
He said businesses were stepping up contingency plans but the economy as a whole was not prepared for a “no deal, no transition exit”. The mothballing of investment projects was to continue, Carney added.
Rain Newton-Smith, the chief economist at the CBI, the business lobby group, 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.”
The Bank’s nine-member monetary policy committee (MPC) voted unanimously to keep interest rates at 0.75%, and scaled back the number of increases in borrowing costs needed to meet the government’s 2% inflation target to one 0.25 percentage-point rise in the next two years.
Minutes of the MPC’s interest rate meeting said over the past three months, “key parts of the EU withdrawal process had remained unresolved and uncertainty had intensified”.
They added: “Businesses had appeared increasingly to be responding to Brexit-related uncertainties and there were some signs that those uncertainties might also be affecting households’ spending and saving decisions.”
The Bank’s latest forecasts assumed uncertainty and turbulence in the financial markets would persist for longer, but weaker growth now will allow for slightly faster than expected expansion in the future.
The MPC minutes noted consumer confidence, particularly the view households took of the general state of the economy, had softened significantly. [...]
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