The Bank slashed this year’s growth forecast to 1.2 percent – the lowest since 2009, when the economy slumped 4.2 percent at the height of the recession. This shock downgrade compares with 1.7 percent predicted in Novermber, while the Bank has also cut its outlook for 2020 to 1.5 percent. The gloomy outlook came as policymakers at the nine-strong Monetary Policy Committee voted unanimously to keep interest rates chaged at 0.75 percent.
The Bank said growth likely halved to 0.3 percent in the final quarter of last year – down from 0.6 percent in the previous three month period and estimated it will fall again to 0.2 percent in the first quarter of 2019.
This dramatic slowdown is being driven by sharp falls in business investment, a drop in consumer spending and areas of weakness in the UK housing market.
The Bank added a bigger-than-expected slump in the global economy is also impacting UK growth.
Pound LIVE: GBP Sterling PLUMMETS against euro and dollar after UK growth forecast slashed
But the central bank expects the impact to be short-term, with expansion set to recover later this year, but this is based on a Brexit deal being agreed by March 29.
In its quarterly inflation report, the Bank highlighted the volatility of its forecasts dependent on Brexit fears.
The report predicted growth could be 1.5 percent higher over the next three years at 1.6 percent in 2019 – if a favourable deal is reached between the UK and European Union.
But the Bank also warned growth could plunge 0.8 percent this year if Brexit uncertainty isn’t resolved and financial conditions tighten.
The Bank’s quarterly inflation report also warned interest rates may not rise until the second half of 2020 as fears around Brexit have seen businesses freeze spending, while consumer confidence has “weakened significantly”.
In minutes of the latest rates decision, the Bank said: “Since the Committee’s previous meeting, 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 signs that those uncertainties might also be affecting household spending and saving decisions.”
This is a breaking story. More to follow.