The Bank of England has downgraded the UK’s economic growth forecasts following the Government’s Brexit deal and the global economic slowdown.
It voted to hold interest rates at 0.75%, although two policymakers called for an immediate interest rate cut to support the economy.
The latest projections from the Monetary Policy Committee (MPC) have significantly reduced growth projections for the next three years after modelling the impact of the Prime Minister’s deal to leave the EU.
GDP forecasts were downgraded from 1.2% for 2020 from 1.3%, and to 1.8% in 2021 from 2.3%.
Why are the predictions changing?
The committee said that three quarters of the projected slump in GDP was driven by a “weaker global environment”.
The remaining quarter of the fall in projections came from the impact of the proposed Brexit deal, it said.
This is the first time that a specific Brexit deal has been modelled by the Bank of England.
The Bank’s previous forecasts had spread Brexit impacts across a 15-year period.
But the timeframe in the Prime Minister’s renegotiated withdrawal agreement means the economic impact could come sooner.
Any deal would have led to a cut in growth forecasts, but increased certainty from a deal being signed off by Parliament would help to drive a boost in investment growth, the bank added.
This comes despite an increase in GDP of 0.4% from June to September, doubling previous forecasts of a 0.2% rise.
What will happen with interest rates?
Whilst interest rates remain at 0.75% for now, the Bank suggested that rates could be cut to 0.5% next year and then frozen until 2022.
Michael Saunders and Jonathan Haskell, who voted to reduce interest rates this time round, fear that growth could be weaker and Brexit uncertainties could go on for much longer than the MPC believes.
Lower interest rates are good for borrowers but bad for savers as most banks use the Bank of England as a starting point when deciding what rates to offer on mortgages, loans and savings accounts.
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HeadlineBank of England warns Brexit deal would cut UK economic growth
Short HeadlineBoE warns Brexit deal would cut UK growth
StandfirstThe Bank blamed Boris Johnson's Brexit deal and the global economic slowdown for the revised projections.
The Bank of England has downgraded the UK’s economic growth forecasts following the Government’s Brexit deal and the global economic slowdown.
It voted to hold interest rates at 0.75%, although two policymakers called for an immediate interest rate cut to support the economy.
The latest projections from the Monetary Policy Committee (MPC) have significantly reduced growth projections for the next three years after modelling the impact of the Prime Minister’s deal to leave the EU.
GDP forecasts were downgraded from 1.2% for 2020 from 1.3%, and to 1.8% in 2021 from 2.3%.
Why are the predictions changing?
The committee said that three quarters of the projected slump in GDP was driven by a “weaker global environment”.
The remaining quarter of the fall in projections came from the impact of the proposed Brexit deal, it said.
This is the first time that a specific Brexit deal has been modelled by the Bank of England.
The Bank’s previous forecasts had spread Brexit impacts across a 15-year period.
But the timeframe in the Prime Minister’s renegotiated withdrawal agreement means the economic impact could come sooner.
Any deal would have led to a cut in growth forecasts, but increased certainty from a deal being signed off by Parliament would help to drive a boost in investment growth, the bank added.
This comes despite an increase in GDP of 0.4% from June to September, doubling previous forecasts of a 0.2% rise.
What will happen with interest rates?
Whilst interest rates remain at 0.75% for now, the Bank suggested that rates could be cut to 0.5% next year and then frozen until 2022.
Michael Saunders and Jonathan Haskell, who voted to reduce interest rates this time round, fear that growth could be weaker and Brexit uncertainties could go on for much longer than the MPC believes.
Lower interest rates are good for borrowers but bad for savers as most banks use the Bank of England as a starting point when deciding what rates to offer on mortgages, loans and savings accounts.
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