Rate cut a possibility as global growth stalls

The Bank of England surprisingly held out the prospect of an interest rate cut on Thursday as it downgraded the UK's economic growth forecasts because of Brexit and the global economic slowdown.

David Sapsted

7 November 2019

While the bank's nine-member Monetary Policy Committee (MPC) voted to hold interest rates at 0.75 per cent, two members of the committee voted for a cut to 0.5 per cent.Minutes of the latest MPC meeting said: "Monetary policy could respond in either direction to changes in the economic outlook in order to ensure a sustainable return of inflation to the two per cent target."The committee would, among other factors, monitor closely the responses of companies and households to Brexit developments as well as the prospects for a recovery in global growth."If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation."The bank also reduced growth projections for the UK economy over the coming two years. Modelled on the impact of the prime minister's Brexit deal, the MPC downgraded projections of GDP growth from 1.3 to 1.2 per cent next year and from 2.3 to 1.8 per cent in 2021. However, this year's projection was increased from 1.3 per cent to 1.4 per cent.The European Commission mirrored the bank's projection as it increased its growth forecast for the UK next year to 1.4 per cent, from a previous estimate of 1.3 per cent.But the commission in Brussels was gloomy about many European economies, reducing its expectation of growth in Germany next year to one per cent, from 1.4 previously. Italy’s 2020 growth forecast has been almost halved, to 0.4 per cent from 0.7.Mark Carney, governor of the Bank of England, said: "At a time when news about the political and economic outlook seems to move hourly, it's important to step back and look at the bigger picture. Globally, that big picture has darkened."He said that the bank expected Brexit uncertainties to retreat once a deal had been agreed with the EU and once global growth had picked up. But if either failed to happen, he said interest rates might need to be cut to support growth.Asked about if he was surprised that the government had failed to name a successor as governor, Mr Carney - who is due to leave the post on January 31 - said: "It's entirely understandable that given the overwhelming priority of the Brexit negotiations and the political process that's under way, that a decision has not been taken about my successor."On the other side of the election (on December 12), I'm sure the government will take that decision in an orderly fashion."