Brexit uncertainty cascading through the economy: BoE

Governor of the Bank of England Mark Carney

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".

That's down sharply from the 1.7 per cent predicted in November and below 2018's 1.4 per cent.

After leaving its benchmark interest rate unchanged at 0.75 percent, as widely expected, the BoE announced on Thursday it had slashed its forecast for United Kingdom economic growth for 2019 from 1.7 percent to just 1.2 percent-a level not seen since the financial crisis a decade ago.

While other major central banks have said they will hold off from raising borrowing costs, the BoE said gradual and limited rate rises eventually lie ahead for Britain as long as, in just 50 days' time, a no-deal Brexit is averted.

"Governor Das" remark that "there is room to cut' suggests this is not a one and done easing", said Radhika Rao, economist at DBS Bank.

The gloomy growth outlook came as policymakers on the nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates unchanged. A clarification from the central bank is awaited.

He said the future was "highly uncertain" and pointed to betting markets only offering a 30% chance the United Kingdom will leave the European Union bloc on 29 March.

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.

Indian shares pared gains, while 10-year bond yields slid three basis points after the surprise rate cut.

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.

But it said the hit was expected to be "prove only temporary", with a recovery in expansion later in 2019 - though this is based on a Brexit deal being reached by March 29.

The EC slashed its forecast for Italy to just 0.2 per cent for the whole year, compared with a previous forecast of 1.2 per cent, while it also trimmed Germany's forecast to 1.1 per cent from 1.8 per cent.

It said the United Kingdom economy is set to grow by just 1.2 percent this year instead of 1.7 percent as predicted just three months ago.

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.

India's December headline inflation fell to an 18-month low of 2.19 percent, well below the RBI's medium-term 4 percent target.

The surprise move came nearly a week after Modi's administration unveiled an expansionary budget, which included US$13 billion of help for consumers ahead of the poll that's due by May, and days after a top adviser to the prime minister said the RBI should cut rates.

Most economists polled by Reuters expect interest rates to rise later this year if Brexit goes smoothly.



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