Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

That's primarily due to a weaker global economy in the wake of the ongoing U.S.

"Given the political uncertainty ahead of next month's election it is not at all surprising that the central bank has chose to refrain from any change in policy, but the calls from some members for rate cuts come as something of a surprise and has caused an adverse reaction in the pound", said David Cheetham, chief market analyst at XTB.

With the BoE set to hold the key benchmark rate unchanged at 0.75% on Thursday and the general election less than six weeks away, investors will be watching closely any changes in opinion poll trends for the major political parties before adding positions on the pound.

"In the short term at least, it seems the MPC is more concerned about the downside risks to growth and is prepared to pull the trigger on a rate cut if and when these risks materialise", PwC economist John Hawksworth said. "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", they said in a summary of their policy discussion.

But part of the growth downgrade reflected Johnson's Brexit plans.

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.

In the near-term though, the fact there has been a deal that could soon command support in Parliament has reduced fears of a no-deal Brexit and that should shore up growth, according to Carney.

Uncertainty about the shape of the UK's post-Brexit relationship with the European Union has weakened the pound and dented economic confidence since the June 2016 referendum. And most other prospective lawmakers in the House of Commons are predicted to be anti-Brexit. While Brexit is dominating the economic outlook, there's also no escaping the slowdown in global growth.

If ZEW reveals that sentiment has slumped further than expected into contraction in November, it is likely the Euro Pound (EUR/GBP) exchange rate will fall.

Michael Saunders and Jonathan Haskel, who voted for the cut, argued that the British economy had "a modest but rising amount of spare capacity" and that underlying inflation was "subdued".

However any gains could prove limited as the United Kingdom election campaign grinds on, with political uncertainty likely to cap any upside in GBP exchange rates.

"In other words, it's not inconceivable that we see another sizeable change to the Bank's projections early next year, depending on who prevails at next month's election".

A more dovish RBA knocked the Australian Dollar lower for most of Friday, but the "Aussie" also weakened on news that US President Donald Trump was not as willing to row back US-China tariffs as hoped.

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