The Bank of England sees downside risk to global economy increasing

  • The Bank of England decided to keep the Bank rate unchanged at 0.75% and the asset purchasing program at £435 billion in the unanimous vote.
  • The Bank of England noted that the downside risks to global economic outlook increased and the world economy is set to slow sooner than the Bank anticipated.
  • UK inflation is expected to decelerate to 1.8% in January as oil prices dropped 22% in November and continue to fall.

The Bank of England decided to keep the monetary policy unchanged with the Bank rate at 0.75% and the volume of asset purchases at £435 billion with all Monetary Policy Committee members voting unanimously for the decision.

The Bank of England acknowledged two important negative trends. First, it is the deterioration of the global economy with the downside risks to global growth increasing and the world economy set to slow sooner than the Bank had anticipated at the time of the November Inflation Report.

The second trend relates to Brexit uncertainty and the expected slowdown of the UK economy. The Bank of England noted that Brexit uncertainties have intensified considerably since the November meeting and therefore it downgraded its near-term growth forecast. Bank lowered its fourth-quarter GDP forecast to +0.2% Q/Q from previous +0.3% Q/Q  factoring in the hit by Brexit uncertainty and slowing global economy. The first-quarter 2019 GDP is also set to remain at around 0.2% Q/Q, the Bank said.


In term of main policy target, the UK inflation is expected to fall to 1.8% in January as the continuously falling oil prices drag the overall CPI lower expectedly supporting demand together with rising wages. The Bank of England noted also that domestic inflationary pressures continue to build, but services inflation remains subdued.

Overall the Bank of England repeated judgment that ongoing tightening of monetary policy, at a gradual and limited extent stressing that monetary policy response to Brexit is not automatic and it could be in either direction. 


 

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