The Bank of England (BoE) has maintained interest rates at 0.75 per cent, but said a rate cut could be imminent if Brexit uncertainty continues to weigh on the UK economy, or if the slowdown in growth fails to stabilise.
These concerns caused two out of nine of the bank's Monetary Policy Committee members — Michael Saunders and Jonathan Haskel — to vote for an interest-rate cut. However, this wasn’t enough to move rates, with the bank committee voting to maintain rates by 7 to 2 votes.
"Quarterly GDP growth is expected to average just 0.2 per cent this year, about half its pace in recent years," BoE governor Mark Carney said in a press conference following publication of the MPC's decision.
"As has been the case for some time, Brexit uncertainties are dominating, weighing particularly hard on business investment which, unusually during an expansion, has contracted in five of the past six quarters," he added.
In its meeting on Thursday, the BoE signalled that a further deterioration in growth could see more policymakers support quantitative easing, where the central bank would buy predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy.
The BoE said its committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.
“If global growth fails to stabilise, or if Brexit uncertainty remains entrenched, monetary policy may need to reinforce the expected recovery,” officials said in the summary of the meeting, published on Thursday.
In October, the UK and EU agreed a Withdrawal Agreement and Political Declaration as well as a flexible extension of Article 50. As a consequence, the perceived likelihood of a no-deal Brexit has fallen markedly and the sterling exchange rate has appreciated, the BoE said.
The agreements are expected to remove some of the uncertainty facing businesses and households, the MPC said, forecasting that GDP growth is likely to pick up next year, supported by easier UK government fiscal policy and a modest recovery in global growth.
The prospect of lowering interest rates in the near future shows that the BoE is aligning its policy closer to other central banks, including the Federal Reserve and the European Central Bank, which have already cut rates this year.
In its report, the BoE said that the UK's slowdown has also been due to the weakening of the global economy.
The European Commission’s (EC) growth forecasts on the other hand, which were also released on Thursday, were rosier about the UK’s prospects.
The EC said Britain’s economy is set to grow by 1.4 per cent in 2020, up from 1.3 per cent expected in its Spring forecast. Growth in 2019 is still forecast at 1.3 per cent.
The commission’s overall Autumn growth forecasts, however, were quite gloomy. It cut its growth projections for many of the largest European economies, including Germany, France and Italy, citing “an escalation of trade tensions, a near stagnation of international trade and slowing global growth”.
Germany’s growth forecast for this year was cut was cut to to 0.4 per cent from 0.5 per cent, and for next year to 1 per cent, from 1.4 per cent.
France’s 2019 growth forecast has been trimmed to 1.3 per cent, from 1.4 per cent, but maintained at 1.3 per cent for next year.
Italy’s 2020 growth forecast has been almost halved to 0.4 per cent, from 0.7 per cent. The EC still expects growth of just 0.1 per cent this year.
The European Commission added that it thought a no-deal Brexit would only have a “minor” impact on the continent’s economy.
