The Bank of England (BoE) also held interest rates at 0.75% as it significantly reduced growth projections for the next three years after modelling the impact of the Prime Minister’s deal to leave the EU. Mr Carney said today the “global picture has darkened” and the world “risks slipping into a low growth, low inflation rut”. He said: “Many of these dynamics occurred first in the UK.”
“Recent Brexit deal creates the possibility of pick up in UK growth.”
“Pace of recovery depends critically on how much Brexit uncertainty actually dissipates.”
“Both reduced Brexit uncertainty and stronger world economy assumed in BoE forecasts, but neither is assured.”
BoE said in an additional statement: “The Withdrawal Agreement and extension of the UK’s membership of the EU appears to have reduced Brexit-related uncertainty.”
They said if “global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP and inflation”.
Latest projections from the Monetary Policy Committee (MPC) forecast a slump in GDP of around 1% by the end of 2022, compared to the forecasts from August.
GDP forecasts were downgraded to 1.2% for 2020 from 1.3%, and to 1.8% in 2021 from 2.3%, while the figure for 2019 was bumped up to 1.4% from the previous forecast of 1.3%.
The committee said that three quarters of the projected slump was driven by the “weaker global environment” and recent “moves in asset prices”.
It said the remaining quarter of the fall in projections came from the impact of the proposed Brexit deal and the 2019 spending round.
This is the first time a specific Brexit deal has been modelled into economic growth forecasts by the bank, stating that the deal leaves it worse off than under previous Brexit assumptions.
It said forecasts had previously spread Brexit impacts on GDP over a 15-year period and the time-frame drafted by the deal has resulted in a significant downgrade in the near term.
The projections highlight that a greater proportion of the adjustment to new trading arrangements will take place in the next three years, causing a faster slowdown in growth.
Any deal would have led to a cut in growth forecasts, but increased certainty will help to drive a near-term pick-up in investment growth, the bank added.
The central bank also held interest rates at 0.75 despite the first split decision on rates in more than a year, in its latest committee meeting.
Members of the nine-strong MPC voted seven to two in favour of leaving rates unchanged, after members Jonathan Haskel and Michael Saunders made the first call for a cut in more than three years.
Analysts had predicted that it would unanimously hold rates after the looming snap election was announced.
However, members of the MPC suggested at their last meeting that they could vote to cut rates if Brexit delays continued.
The MPC said that GDP expanded in the most recent quarter, rising 0.4% in the period from June to September, up from previous forecasts of 0.2%
It said that since its previous meeting, the decreased likelihood of a no deal exit from the EU was somewhat offset by “signs of softer international growth”.
The Bank forecast that rates could be cut to 0.5% next year and held at that rate until 2022.
Dr Kerstin Braun, President of Stenn Group, an international provider of trade finance head quartered in London, commented on the Bank of England’s decision to hold interest rates.
She said: “Mark Carney is right to hold rates for now. Brexit and trade worries have been weighing on the economy and now a snap general election has been thrown into the mix.
“But even if we avoid a Brexit crash out, or if Brexit is scrapped all together, the UK is slowly running out of gas, driven down by persistent uncertainty and the flagging global economy.
“European stocks might be up after some tariffs have been rolled back, but it will take time to undo the damage caused by the trade war.
“The MPC has been hinting at a rate cut for a while, with or without a confirmed Brexit deal, but it’s likely to be at least three more months of paralysis before we see a move.
“Business investment will consequently be lacking, and thus no resulting lift to the wider economy. Sterling will likewise muddle along.
“This limbo is starting to feel like ‘the new normal’ when it should only be temporary. UK businesses need to be able to withstand the burden of this longer wait.”