Bank of England slashes growth forecasts amid Brexit and global trade disputes

The Bank of England (BoE) slashed its growth forecast on Thursday amid Brexit uncertainty and ongoing global trade disputes that threaten to stall global economic expansion.

However, the BoE did not say that it plans to lower interest rates to support the UK economy, unlike other central banks.

‘All eyes will be on the MPC’s September meeting,’ Chief Economist at the Institute of Directors Tej Parikh said.

‘If a disorderly exit from the EU is on the cards, the Bank must not shy away from lowering interest rates in advance to support businesses and households through the turbulence.

‘Waiting until after the fact could lower the impact of any action taken,’ he added.

US Federal Reserve lowers interest rates

Unlike the BoE, the US Federal Reserve opted to reduce interest rates for the first time since the global financial crisis over a decade ago.

Meanwhile, the BoE reiterated that it still plans to raise rates slowly over time, but only it the global economy remains stable and the UK can leave the EU with a ‘smooth’ Brexit.

‘Profound uncertainties over the future of the global trading system and the form that Brexit will take are weighing on UK economic performance,’ Bank of England Governor Mark Carney said after the announcement on Thursday.

“Until they are resolved, shifting perceptions of these factors will drive volatility in market interest rates, equity prices and currencies’ values,’ he added.

BoE opts to leave rates unchanged despite challenging outlook

The BoE’s Monetary Policy Committee (MPC) voted 9-0 in favour of leaving interest rates unchanged, adding that in the event of a no-deal Brexit it would not inevitably reduce the cost of borrowing.

‘Underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade,’ the BoE said.