The Bank of England has downgraded the UK’s economic growth forecasts on the back of Boris Johnson’s Brexit deal and the global economic slowdown.
The Bank also held interest rates at 0.75% as it significantly reduced growth projections for the next three years after modelling the impact of the Prime Minister’s deal to leave the EU.
Latest projections from the Monetary Policy Committee (MPC) forecast a slump in GDP of around 1% by the end of 2022, compared with the forecasts from August.
GDP forecasts were downgraded to 1.2% for 2020 from 1.3%, and to 1.8% in 2021 from 2.3%, while the figure for 2019 was bumped up to 1.4% from the previous forecast of 1.3%.
The committee said that three-quarters of the projected slump was driven by the “weaker global environment” and recent “moves in asset prices”.
It said the remaining quarter of the fall in projections came from the impact of the proposed Brexit deal and the 2019 spending round.
This is the first time that a specific Brexit deal has been modelled into economic growth forecasts by the Bank, stating that the deal leaves it worse off than under previous Brexit assumptions.
It said that forecasts had previously spread Brexit impacts on GDP over a 15-year period and the timeframe drafted by the deal has resulted in a significant downgrade in the near term.
The projections highlight that a greater proportion of the adjustment to new trading arrangements will take place in the next three years, causing a faster slowdown in growth.
Any deal would have led to a cut in growth forecasts, but increased certainty will help to drive a near-term pick-up in investment growth, the Bank added.
The central bank also held interest rates at 0.75% despite the first split decision on the issue in more than a year at its latest committee meeting.
Members of the nine-strong MPC voted seven to two in favour of leaving rates unchanged, after members Jonathan Haskel and Michael Saunders made the first call for a cut in more than three years.
Analysts had predicted that it would unanimously hold rates after the looming snap election was announced.
However, members of the MPC suggested at their last meeting that they could vote to cut rates if Brexit delays continued.
The MPC said that GDP expanded in the most recent quarter, rising 0.4% in the period from June to September, up from previous forecasts of 0.2%.
It said that, since its previous meeting, the decreased likelihood of a no-deal exit from the EU was somewhat offset by “signs of softer international growth”.
The Bank signalled that rates could be cut to 0.5% next year and held at that rate until 2022.