Interest rates were left at 0.75 percent today after a unanimous vote by the Monetary Policy Committee (MPC). It cut growth forecasts for the final quarter of 2018 to 0.2 percent, citing Brexit turbulence and a slowing global economy as main driving factors behind a fear of a slowdown in the UK economy. The move marked a downgrade from 0.3 percent previously guided. It said that growth was “likely to remain around that level in the first quarter of 2019”.
In minutes of the MPC meeting, the Bank said: “The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth.
“Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term.
“The housing market has remained subdued. Indicators of household consumption have generally been more resilient, although retail spending may be slowing.”
The Bank added: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.
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“The MPC judges at this month’s meeting that the current stance of monetary policy is appropriate.
“The committee will always act to achieve the 2 percent inflation target.”
The Bank said that the loosening of fiscal policy previously announced in the Government’s Budget “would boost GDP by around 0.3 percent over the MPC’s forecast period”.
This in turn is expected to boost inflation slightly during the second half.
The Bank expects inflation to fall below its 2 percent target in January to around 1.75 percent and “remain under target over the subsequent few months”.
The 12-month Consumer Prices Index (CPI) inflation fell 2.3 percent in November.
Stefan Koopman, market economist at Rabobank, said: “All roads ultimately lead back to Brexit and until there’s a semblance of certainty, the outlook will remain difficult for the UK.
“We expect interest rates will remain unchanged, with May offering the best hope of a hike.
“However, this is largely dependent on Britain leaving the EU with a deal in place.
“Business is reluctant to invest in the current climate.
“As such we expect the economy to come to a near standstill, with GDP growth expected to drop to 0.2 percent this quarter and set to stall further to 0.1 percent in Q1 2019.
“The UK’s labour market is in a very healthy position, with employment at record levels and pay growth at pre-2008 highs.
“The climate would have been ideal for a rates rise had the ongoing political situation not muddied the waters.”