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Bank of England slashes UK growth outlook over 'fog of Brexit'

AFP  |  London 

The of England on Thursday slashed its forecast for UK growth this year to 1.2 per cent from 1.7 per cent, blaming the downgrade on a global economic slowdown and "the fog of Brexit".

"UK economic growth slowed in late 2018 and appears to have weakened further in early 2019," the BoE said after keeping its main interest rate at 0.75 per cent.

"This slowdown mainly reflects softer activity abroad and the greater effects from uncertainties at home," it added.

of England warned that Britain was "not prepared" for a no-deal

"Although many companies are stepping up their contingency planning, the economy as a whole is still not yet prepared for a no-deal no-transition exit," Carney told a press conference to elaborate on the BoE's latest forecasts.

"The fog of is causing short term volatility in the economic data and more fundamentally it is creating a series of tensions in the economy. Tensions for business," he added.

The and Britain agreed to hold further talks to try and save their Brexit deal, after May met in on Thursday.

Plans for Britain to leave the EU on March 29 under a withdrawal agreement signed last year were thrown into doubt when British lawmakers overwhelmingly rejected the accord last month.

Meanwhile should British GDP come in at 1.2 per cent, it will be the country's weakest output in a decade.

In November the BoE had forecast 2019 growth of 1.7 per cent.

"Brexit uncertainties had intensified considerably since the Committee's November meeting," the BoE said Thursday.

"The economic outlook will continue to depend significantly on the nature of EU withdrawal," it added.

The BoE also slashed its forecast for 2020 UK growth -- to 1.5 per cent from 1.7 per cent.

The downgrades sent the pound sinking under USD1.29, while the euro rebounded close to 88 pence.

"The pound has dropped to its lowest (dollar) level in almost three weeks... although it should be stated that the market reaction is fairly muted," noted

Output in Britain's dominant service sector almost ground to a halt in January, data showed this week.

The IHS Markit/CIPS UK services purchasing managers' index (PMI) fell to 50.1 -- the lowest level in two and a half years -- down from 51.2 a month earlier.

A PMI reading above 50 indicates growth.

Concerns about Britain's impending departure from the EU dampened demand and caused firms to delay making decisions on new projects.

The followed disappointing PMI readings for the and construction sectors in January.

Britain is meanwhile not alone in experiencing a cooling economy.

The on Thursday sharply cut its 2019 eurozone growth forecast on an unexpected slowdown in and protests in

In the US, the last month left its key lending rate unchanged and said it would be patient about making any further changes, in a clear signal that the central has heeded concerns about the economy.

A slowdown to China's economy has also rattled markets in recent months.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, February 07 2019. 20:50 IST