RBI to cut rates again before elections, but no more

Bank warns of no-deal recession			
				 
   by Joel Taylor 
  Published

Bank warns of no-deal recession by Joel Taylor Published

The pound has dropped after the Bank of England slashed its forecasts for the British economy amid growing uncertainties over Brexit.

The Bank downgraded its forecast from the 1.7 per cent predicted in November, and also cut its outlook for 2020 to 1.5 per cent.

The other factor weighing on the GBP/USD was the Bank of England cutting the growth forecast for the United Kingdom economy lower in the February release of its Inflation report last Thursday.

Uncertainty surrounding Brexit pushed the Bank of England to lower its economic growth forecast for the United Kingdom in 2019 to just 1.2%, which would mark the country's slowest growth since the financial crisis.

Barry McAndrew, ‎fixed income senior portfolio manager at State Street Global Advisors, EMEA, said: "The committee seem happy to wait for some clarity on Brexit negotiations and the economies response to it, before making their next move".

Bank of England governor Mark Carney warned that Britain was "not prepared" for a no-deal Brexit.

Mark Carney, the Bank's Governor, and the other members of the Monetary Policy Committee voted unanimously to hold interest rates steady at 0.75pc.

Under our base case scenario of a delayed, albeit successful and somewhat orderly European Union exit, we still think that the Bank of England will raise interest rates towards the end of this year. A clarification from the central bank is awaited.

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Sterling initially dipped a quarter of a cent against the dollar but rebounded after Carney's comments about the possibility of an economic rebound, trading largely unchanged on the day at $1.2925 by 1320 GMT.

Officials said that potential supply growth is now a "little below" the 1.5 per cent previously estimated.

Consumer confidence "took another step down in January", he cautioned, as household spending and the housing market have begun to show signs of being impacted.

"The shift in stance of monetary policy to neutral provides flexibility and the room to address challenges to sustained growth in the Indian economy over the coming months as long as inflation outlook remains benign", said Das. Nevertheless, the forecasts suggested that just one more quarter-point hike would be needed in the next three years to return inflation to close to the 2 percent target, down from nearly three hikes seen in November.

But it said the growth hit was expected to be short-lived, with a recovery in expansion later in 2019 - though this is based on a Brexit deal being reached by March 29. "We might see inflation normalizing back to their 3-4 percent range by the middle of this year".

Carney denied the February inflation report was a move away from its plan for "gradual and limited" interest rate hikes in the future.

It forecasts recent drops in oil prices to see inflation - now at 2.1 per cent - ease back below its 2 per cent target for much of 2019, but pick up again further out due to domestic pressures, such as wage growth.

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