Friday, 22 February, 2019


BoE governor warns of no-deal Brexit recession risk

Governor of the Bank of England Mark Carney Governor of the Bank of England Mark Carney
Conrad Doyle | 09 February, 2019, 16:27

Ricky Knox said: "Irrespective of whether we have a no-deal Brexit, the United Kingdom economy is slowing".

If Britain finalizes and approves a deal for a smooth Brexit transition, the British economy and household spending could get a boost, Carney said.

A Reuters snap poll taken immediately after Thursday's policy review - where the RBI unexpectedly reduced interest rates by 25 basis points - showed the central bank will make the same move next quarter.

The Bank said on the flip side, growth could slump to a potential 0.8 per cent in 2019 should uncertainty persist and financial conditions tighten.

Against the dollar, the pound had depreciated steadily in the hours leading up to the inflation report, from US$1.294, but the sharp rejection of sub-US$1.29 exchange rates indicates underlying short-term strength for Britain's currency.

The NSE index was up 0.05 percent at 11067.05, while the 10-year benchmark government bond yield fell to 7.52 percent from Wednesday's close of 7.56 percent. So the interest rates would have to go up.

There is also the BOE meeting to look out for and if anything else, I would expect dovish tones to come out from Carney on the economic outlook and on Brexit developments. "They are still subtly saying that their preference is to raise rates, but it all hinges on Brexit".

The U.K.is now just 50 days away from a March 29 deadline to leave the European Union, and an agreement for its new relationship settled has yet to be settled.

The central bank reduced its 2019 economic growth forecast to 1.2%, down from its earlier estimate of 1.7% that it made in November a year ago.

Business and farm leaders said they were also sceptical about the impact of the rate cut - and said it was the inability to borrow that was the biggest problem.

The BoE saw a fall this year in business investment and housebuilding, which have been weak in the run-up to Brexit, as well as a halving of the growth rate in exports, reflecting the global slowdown. "With downside risks to growth, and inflation well within the comfort zone of the RBI, and real interest rates high, a rate cut was expected", said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.

It forecasts inflation - now at 2.1% - will fall below its 2% target for much of 2019, before picking up again due to domestic pressures, such as wage growth. In the press conference, Carney stuck to his line that more rate increases will probably still be necessary to keep inflation in check.

The BoE kept its wage forecasts largely unchanged with earnings rising by more than 3 percent a year over the next three years.

Speaking on Thursday, Bank of England governor Mark Carney said: "The fog of Brexit is causing short-term volatility in the economic data and, more fundamentally, it's creating a series of tensions".

John McDonnell, the shadow chancellor, was quoted by The Guardian as saying: "The Bank of England downgrading its 2019 growth forecast shows that people are increasingly anxious about this government's stewardship of the economy".

When asked if the central bank under new Governor Shaktikanta Das was likely to cut again before the national election, just over half, or 30 of 54 economists said yes. Most respondents expected the central bank to only change the stance, to neutral. German industrial production numbers out on Thursday were particularly troublesome.

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