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November 2, 2018

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BoE cuts growth outlook over Brexit

The Bank of England yesterday trimmed its growth forecasts as Brexit approaches and froze interest rates — but warned it could alter monetary policy “in either direction” after Britain leaves the European Union.

The central bank’s nine-strong Monetary Policy Committee voted unanimously at a regular policy meeting to keep its key rate at 0.75 percent and maintain its quantitative easing stimulus, it announced in a statement.

The BoE predicted the economy will expand by 1.3 percent this year in a downgrade of prior guidance of 1.4 percent, blaming slowing global economic growth. It now expects gross domestic product to increase by 1.7 percent in 2019, the year in which Britain will leave the European Union. That was down from 1.8 percent previously.

The institution last hiked rates in August by a quarter-point to help tame Brexit-fueled UK inflation, and remains in wait-and-see mode.

The forecasts are based on the assumption of a smooth transition period, but there is growing unease on markets about a chaotic no-deal Brexit.

“The economic outlook will depend significantly on the nature of EU withdrawal, in particular the form of new trading arrangements, the smoothness of the transition to them and the responses of households, businesses and financial markets,” the BoE said, echoing its previous remarks.

“The MPC judges that the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. At this meeting the MPC judged that the current stance of monetary policy remained appropriate.”

But it warned business investment has screeched to a halt this year as uncertainty wreaks havoc on company spending decisions.


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