The Bank of England cut its growth forecast for Britain’s economy to zero in the second quarter of 2019 and highlighted risks from global trade tensions and growing fears of a no-deal Brexit.
BoE officials voted unanimously to hold interest rates at 0.75%, as expected, and stuck to their message that rates would need to rise in a limited and gradual fashion, assuming Britain can avoid a damaging no-deal Brexit.
However, the BoE noted on Thursday a darkening global outlook that has already prompted the European Central Bank, U.S. Federal Reserve and Bank of Japan to signal this week that more stimulus could be on the way.
Britain’s economy is now on track to stagnate in the second quarter, the BoE said, rather than grow 0.2% quarter-on-quarter as it had predicted last month, citing the run-up in stockpiling earlier this year by many companies ahead of an original Brexit deadline in March.
“Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen,” the BoE said in its policy statement.
Former foreign secretary Boris Johnson is the front-runner in the race to succeed Prime Minister Theresa May. He and other contenders have said they are prepared to lead Britain out of the European Union without a deal, if necessary.
The BoE said financial conditions in Britain had loosened since last month, which mechanically would feed through into stronger forecasts for economic growth, excess demand and inflation.
But it highlighted a mixed picture for inflation pressures. There are increasing signs that wage growth is levelling off, the BoE said, although the labour market remained tight.