Bank of England holds rates at 0.75pc but slashes growth forecast on brink of Brexit

THE BANK of England has delivered a blow on the eve of Brexit by slashing its UK growth forecasts but held off from cutting interest rates amid signs of a recent pickup in the economy.

Members of the Monetary Policy Committee voted seven to two to hold rates at 0.75 per cent, despite recent speculation a cut was on its way.

The bank revealed in its quarterly forecasts that it is expecting the economy to have flatlined at the end of last year and made a significant downgrade to the growth outlook – to 0.8 per cent in 2020, 1.4 per cent in 2021 and 1.7 per cent in 2022.

It had previously predicted growth of 1.2 per cent, 1.8 per cent and 2 per cent respectively.

But it said recent survey data pointed towards a “near-term recovery” in growth after the decisive Conservative election win and easing Brexit uncertainty.

The bank is estimating growth will edge up to 0.2 per cent in the first three months of 2020.

It stressed that a rate cut could still be on the cards if growth did not recover as expected.

Outgoing governor Mark Carney said: “These are still early days and it’s less of a case of ‘so far so good’, than ‘so far good enough’.

“It will be important for the

hard data on activity to follow through on the recent pick-up in the surveys and for domestic price inflation to strengthen.”

He added that despite signs of stabilising growth in the wider global economy, the bank was “watching closely” the coronavirus outbreak in China for any implications on worldwide GDP.

“Monetary policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak,” he said.

The rates decision marks the last for Mr Carney, who is handing over the reins to Financial Conduct Authority boss Andrew Bailey on March 16.

In his final press conference as governor, he said he “doesn’t have any regrets with monetary policy”, despite some criticism in his tenure over so-called forward guidance on rates.

The growth forecasts will make for painful reading for the Government, coming a day before today’s Brexit deadline.

The bank’s forecasts are based on the assumption of a smooth Brexit but cliff-edge fears have remained at the fore after Prime Minister Boris Johnson legislated against extending the transition period beyond the end of this year.

Mr Carney said if growth did improve, then “modest” rate rises may even be needed over the next few years, though he admitted there were risks given the yearend Brexit deadline.

The minutes from the Monetary Policy Committee show that Jonathan Haskel and Michael Saunders remained the sole dissenters.