Bank of England holds rate, tweaks U.K. growth forecasts

Bank of England holds rate, tweaks U.K. growth forecasts

The Bank of England has downgraded the UK's economic growth forecasts on the back of Boris Johnson's Brexit deal and the global economic slowdown.

This could see Sterling come under pressure if the BoE's policy statement drops any additional hints that the bank will cut interest rates once Brexit is resolved.

The rate-setting committee has been reluctant to move interest rates for over a year given the huge uncertainty surrounding Brexit.

"If global growth fails to stabilize or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in U.K. GDP growth and inflation", he said.

Mr Archer said there is a "very real chance" rates will be cut in 2020 even if a deal is now struck by January 31, although he believes it is more likely they will be held at 0.75% through to 2021. On a dovish note, 2 members of the Monetary Policy Committee voted to cut the policy rate.

Nonetheless, during the presser, BoE Governor Mark Carney indicated that while a reduction in Bank Rate might be needed in order to provide reinforcement to the economy should downside risks emerge, the MPC was not pre-committing.

Though waning fears of a no-deal Brexit should help cushion growth in the near-term, the bank said the British economy will grow by around 1% less over the coming three years than it forecast just three months ago.

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The noon rates decision will be accompanied by the bank's latest set of forecasts in its now renamed Monetary Policy Report, which are expected to slash its 2020 growth outlook from the 1.3% previously pencilled in.

A hung parliament outcome at the December 12 election could also boost the possibility of a rate cut early next year, In that scenario, UBS Wealth Management sees a 25 basis point rate cut by May.

The central bank also upgraded its United Kingdom growth forecast to 1.4 percent in 2019 but downgraded 2020 guidance to 1.2 percent.

But economists at HSBC said a rate cut was not a certainty, as some policymakers looked concerned about rising labour costs.

But money markets do not expect the central bank to cut rates in the near term until more clarity emerges on the political front.

"One of the problems the BoE has is that you have binary events coming up - the election and Brexit", said Berenberg senior economist Kallum Pickering.

The central bank said that if Parliament ratifies Mr. Johnson's Brexit deal and the government inks a free-trade agreement with the European Union similar to the bloc's pact with Canada, then the economy would notch up slow but steady growth in the years ahead.

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