Pound plummets as Bank of England warns about Brexit uncertainty

Lloyd Doyle
February 8, 2019

The Bank of England warned that damage to the economy from Brexit has increased as it cut its growth forecast and predicted a dramatic slump in investment.

This dramatic slowdown is being driven by sharp falls in business investment, a drop in consumer spending and areas of weakness in the United Kingdom housing market.

"Although many companies are stepping up their contingency planning, the economy as a whole is still not yet prepared for a no-deal, no-transition exit". 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.

If inflation remains muted, Das hinted there is more room to cut rates, sounding a markedly more dovish tone from the central bank.

Sterling initially fell a quarter of a cent against the dollar, touching a two-week low, but was up on the day after Carney told reporters of the probability of an economic pick-up after a Brexit deal that would usher in a rate hike.

The MPC also trimmed its economic growth forecast, to 7.2-7.4 percent during April-September, from its previous 7.5 percent estimate.

The downgraded growth expectations coincided with the Bank acknowledging that investors had scaled back their expectations on how much interest rates were likely to rise.

India's central bank on Thursday unexpectedly lowered interest rates and, as anticipated, shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.

Investors now see nearly no chance of a quarter-point rate move by the end of the year.

India's December headline inflation fell to an 18-month low of 2.19 percent, well below the RBI's medium-term 4 percent target.

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.

But businesses and farmers - and even some of his own supporters - say it may be too little, too late to help the economy ahead of voting, which must be held by early May.

The Bank said it conducted a survey of more than 200 businesses that only half had started preparing for a no-deal Brexit.

The Bank's quarterly inflation 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 United Kingdom and European Union.

The European Central Bank has sounded more anxious that the euro zone's recovery has run out of steam.

In minutes of the latest rates decision, the Bank said: 'Since the Committee's previous meeting, key parts of the European Union withdrawal process had remained unresolved and uncertainty had intensified. German industrial production data published on Thursday raised fears that Europe's biggest economy might be heading for a recession.

The BOE's decision follows recent dovish statements from the U.S. Federal Reserve and European Central Bank.

Other reports by Iphone Fresh

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