According to the latest quarterly ‘health check’ from the Bank of England (BOE) the UK economy is set for its worst year since the financial crisis.
Economy – growth forecast cut for 2019.
The cut in the growth forecast for the economy comes as concerns over Brexit spread from companies to consumers.
Warnings from BOE say the economy will grow by less than previously thought. Their growth forecast has been cut from 1.7% to 1.2%. The Bank also blamed a slowing global economy as well as uncertainty over Brexit. The also concluded there was a 25% chance of a recession in 2019.
These predictions are also assuming a smooth departure from the EU later this month.
These figures would show the slowest growth since the economy contracted by 4.2% in 2009, during the financial crisis.
Bank of England governor, Mark Carney 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.”
MPC vote to keep interest rates unchanged.
The Bank’s nine-member monetary policy committee (MPC) voted unanimously to keep interest rates at their present level of 0.75%. They have 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.
At their meetings the MPC said:
“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 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 also noted consumer confidence, particularly the view households took of the general state of the economy, had softened significantly.
Bank stressed the performance of the economy would depend on how Brexit unfolded.
Growth is forecast to be 0.2% in each of the first two quarters of 2019, down from the 0.4% in each period pencilled in by the Bank in November.
Activity is expected to pick up towards the end of the year. Although the Bank stressed the performance of the economy would depend on how Brexit unfolded.
“The economic outlook will continue to depend significantly on the nature of EU withdrawal. In particular, the new trading arrangements between the EU and the UK. Whether the transition to them is abrupt or smooth, and how households, businesses and financial markets respond.”