BOE voted 9-0 to leave the Bank rate unchanged at 0.75%. It also maintained the asset purchase program at 435B pound and corporate purchase at 10B pound. BOE also made detailed discussion on the problems stemmed from Brexit uncertainty.
The members warned that “shifting expectations about the potential timing and nature of Brexit” have “heightened volatility in UK asset prices, in particular the sterling exchange rate has risen by over 3½%”. They stressed that “political events could lead to a further period of entrenched uncertainty”. More importantly, “the longer those uncertainties persisted, particularly in an environment of weaker global growth, the more likely it was that demand growth would remain below potential, increasing excess supply”. Indeed, Brexit outlook has remained uncertain after Boris Johnson took office. Despite his assurance that the UK would leave the EU on October 31, the parliament has rejected a no deal Brexit. Further extension of Article 50 beyond October is likely.
Concerning the impacts of escalations of US- China trade war, the members indicated that the outlook for global growth has “weakened”. In August, they noted that global activity was “soft”. BOE also acknowledged major economies have begun easing monetary policies amidst global slowdown.
In the updated economic projections, the central bank lowered GDP growth forecast for 3Q19 to +0.2%, from +0.3% previously. It also forecasts that inflation would stay below its 2% target for the rest of the year, as energy prices falter. Overall, the members judge that “underlying growth has slowed, but remains slightly positive, and that a degree of excess supply appears to have opened up within companies”. A recession is still unlikely.
