Bank of England forecasts lowest growth for a decade

Bank of England forecasts lowest growth for a decade

Uncertainty surrounding Brexit pushed the Bank of England to lower its economic growth forecast for the United Kingdom in 2019 to just 1.2%, which would mark the country's slowest growth since the financial crisis.

"A period of softer growth domestically and in the rest of the world was likely to be prove only temporary", the Bank said.

As the United Kingdom approaches the March 29 deadline to leave the European Union without yet having a deal for a new relationship settled, businesses are slashing spending and consumers are growing more anxious.

Bank governor Mark Carney says: "The fog of Brexit is causing short term volatility in the economic data, and more fundamentally, it is creating a series of tensions in the economy, tensions for business". A chaotic exit would increase the chance of a quarterly contraction in economic output, he said.

Sovereign bonds rallied after the central bank unexpectedly cut its key rate and dropped its hawkish stance citing easing inflation, providing relief to traders concerned about a record government borrowing program.

As late as November, the Bank had projected progress of 1.7% this year.

The European Commission on Thursday sharply cut its 2019 eurozone growth forecast on an unexpected slowdown in Germany and protests in France.

The pound declined after the report was published, before erasing its losses.

Remembering the love story of Debbie and John Dingell
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The main reason the BoE thinks underlying inflation pressures will grow is faster wage growth after Britain's unemployment rate hit its lowest level in more than 40 years.

The RBI in its last bi-monthly monetary policy announcement for the current fiscal also lowered the retail inflation forecast for the first half of next fiscal beginning April, to 3.2-3.4 per.

As predicted, the Bank kept interest rates on hold at 0.75%. But a government report leaked last week showed unemployment at a 45-year-high of 6.1 percent in 2017-18.

"The economic outlook will continue to depend significantly on the nature of European Union withdrawal", it added. Acknowledging the huge impact of uncertainty, it ran an analysis showing that less uncertainty would lead to much stronger growth - 1.6 percent this year and 2.2 percent in 2020.

The former Tory minister under John Major ridiculed Treasury forecasts prior to the Brexit referendum as he dismissed no deal Brexit warnings from the likes of Mark Carney.

- Dan Hanson, Bloomberg Economics.

Most economists polled by Reuters expect interest rates to rise later this year if Brexit goes smoothly. Nevertheless, the forecasts suggested that just one more quarter-point hike would be needed in the next three years to return inflation to close to the 2 percent target, down from nearly three hikes seen in November.

The surprise move came nearly a week after Modi's administration unveiled an expansionary budget, which included US$13 billion of help for consumers ahead of the poll that's due by May, and days after a top adviser to the prime minister said the RBI should cut rates.

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