The Bank of England today decided to leave interest rates unchanged as expected, but slashed UK growth forecasts as Brexit uncertainties mount.
The bank's monetary policy committee (MPC), which last raised rates to 0.75 per cent in August last year, unanimously voted to hold interest rates for a fourth consecutive meeting.
The MPC said a UK economic slowdown in late 2018 "appears to have weakened" at the beginning of this year, citing softer activity abroad and greater effects from Brexit uncertainties.
It cut growth forecasts for 2019 to 1.2 per cent of GDP, down from its previous 1.7 per cent forecast in November.
It would be the weakest expansion since 2009.
The bank's governor Mark Carney said business investment would soften further "before picking up sharply once the fog clears."
Carney added that a "rapid decline in certainty" could push growth up by 0.5 per cent on its forecasts.
The growth outlook for 2020 was also trimmed to 1.5 per cent, from 1.7 per cent.
Sterling fell 0.41 per cent following the Brexit warning and lowered forecast, from $1.293 to $1.287, but has since surged up to $1.294 and 1.14 against the euro.
The committee said: "UK economic growth slowed in late 2018 and appears to have weakened further in early 2019.
"This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home."
It added that the economic outlook "depends significantly" on the nature of Brexit, specifically new trading arrangements and whether the transitions is smooth or abrupt.
In the minutes of its meeting, the MPC said: "Since the Committee’s previous meeting, key parts of the EU withdrawal process had remained unresolved and uncertainty had intensified.
"Businesses had appeared increasingly to be responding to Brexit-related uncertainties, and there were some signs that those uncertainties might also be affecting households’ spending and saving decisions."
The MPC also unanimously voted to maintain its stock of UK government bond purchases at £435bn and its stock of corporate bonds at £10bn.
City A.M.’s shadow monetary policy committee unanimously voted to hold interest rates ahead of today’s meeting.
The panel of City economists cited “peak Brexit uncertainty” and the possibility of a continued global slowdown as reasons to leave the rate unchanged.
They noted that the UK labour market remained robust but that a global softening indicated caution.
This month’s guest chair, Tej Parikh, an economist at the Institute of Directors, said: “The speed of travel for interest rate hikes remains inextricably linked to what happens on 29 March. Right now, uncertainty is checking domestic demand.
“Businesses have been shelving investment plans, and consumers are also tightening their belts as Parliament remains in deadlock.
“Meanwhile, a potential global slowdown is adding a downside risk to the U.K.’s future economic growth.”