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BOE cuts forecasts, says Brexit damage to economy has risen

10 February 2019, 07:42 | Joann Bryant

The Bank of England will make a decision on interest rates tomorrow

Bank Of England Cut Interest Rates To All Time Low

'UK economic growth slowed in late 2018 and appears to have weakened further in early 2019.

Carney denied the February inflation report was a move away from its plan for "gradual and limited" interest rate hikes in the future.

Indian shares pared gains while 10-year bond yields slid 5 basis points after the surprise rate cut.

Ricky Knox, CEO of Tandem Bank, says, "Irrespective of whether we have a no-deal Brexit, the United Kingdom economy is slowing, just look at the problems with British auto manufacturing".

The government was believed to be unhappy with the RBI over a number of issues, including its apparent reluctance to cut rates to stimulate the economy.

It came as the monetary policy committee voted to keep interest rates unchanged at 0.75 per cent.

Santander UK chief economist Frances Haque says: "The decision to hold rates was widely expected by both the market and commentators, given the continued uncertainty around Brexit".

Britain is due to leave the European Union on March 29 but last month the national parliament overwhelmingly rejected the deal that Prime Minister Theresa May had agreed on with the EU.

"Our research from January reveals that 60 per cent of borrowers expect interest rates to increase within the next year".




Its shock downgrade compares with 1.7% predicted in November, while the Bank also cut its outlook for 2020 to 1.5%. "The report sends a clear message the BoE is unlikely to raise rates in the coming months", he said.

Financial markets have cut almost one full quarter point rate rise over the next two years since the last inflation report in November, factoring in just a 50/50 chance of one hike in 2019.

Business and farm leaders said they were also sceptical about the impact of the rate cut - and said it was the inability to borrow that was the biggest problem.

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

The RBI raised rates twice a year ago over concerns about rising prices but with inflation now at an 18-month low the bank said it was time to opt for a reduction.

The main reason the BoE thinks underlying inflation pressures will build is faster wage growth after Britain's unemployment rate hit its lowest level in more than 40 years.

"Eurozone stocks are suffering greatly as investors are fearful the region could be in for an economic downturn", CMC Markets analyst David Madden said.

But the currency rallied after governor Mark Carney said Brexit clarity would boost forecasts and a "robust but constructive" meeting between Theresa May and Jean-Claude Juncker in Brussels.

Government officials were quick to praise the RBI's move, while economists were more cautious, concerned that the monetary and fiscal stimulus would be inflationary.



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