Bank of England slashes economic forecasts as interest rates hold steady

The Bank of England (BoE) has left interest rates unchanged as it slashed outlooks for economic growth on the eve of Brexit.

The Bank of England stressed that a rates hike could be just around the corner. Picture: Daniel Leal-Olivas/AFP/Getty Images

Despite recent speculation that a rate cut was imminent, members of the Monetary Policy Committee (MPC) voted seven to two to hold rates at 0.75 per cent, with Jonathan Haskel and Michael Saunders calling for a cut to 0.5 per cent.

The BoE also significantly downgraded its growth forecasts to 0.8 per cent in 2020, 1.4 per cent in 2021 and 1.7 per cent in 2022.

It had previously predicted growth of 1.2 per cent, 1.8 per cent and 2 per cent, respectively.

Outgoing Bank of England governor Mark Carney. Picture: Chris J Ratcliffe/AFP/ Getty Images

This comes just one day ahead of Brexit on 31 January.

But the BoE said recent survey data pointed towards a "near-term recovery" in growth after the decisive Conservative election win and easing Brexit uncertainty and estimates growth will edge up to 0.2 per cent in the first quarter. This is based on the assumption of a "smooth" Brexit.

Rate cut on the cards

The Bank stressed that a rate cut could still be on the cards if growth does not recover as expected.

In minutes of the MPC meeting, the BoE said: "Policy might need to reinforce the expected recovery in UK GDP (gross domestic product) growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak."

Kevin Brown, savings specialist at Scottish Friendly, said: “It would not be surprising at all to see some movement within the next couple of months.

“The pressure on the Bank to cut rates has eased in the past few days, with recent data showing the economy performed better than expected in January.

“But the Bank has a delicate balancing act to manage in the coming months, where it will be expected to foster growth while keeping inflation at a healthy level.

“If either indicator swings significantly, then there is a strong chance that an increasing number of MPC members will vote for a rate cut, which would have dire consequences for savers.”