The Bank of England decided to hold its benchmark interest rate at 0.75 percent, but surprisingly two MPC members dissented calling for a rate cut.
Michael Saunders and Jonathan Haskel voted to slashing interest rate by 25 basis points to 0.50 percent, yielding in a surprising split 7-2 vote, which is the first since June 2018. Yet, all the nine MPC members agreed to hold the asset purchase facility at 435 billion pounds.
Both Saunders and Haskel aimed at protecting the UK economy from the weakening global economy, and Brexit uncertainty, the BOE minutes revealed.
Global slowdown and Brexit uncertainty would have negative impact on U.K. corporate and household spending. “As a result, these members judged that some extra stimulus was needed now to ensure a sustained return of inflation to the target,” the minutes said.
As of 12:15 GMT, the pound retreated against the U.S. dollar at 1.2827 after hitting a bottom at 1.2812, which is the lowest level since October 29.
BOE slashes UK growth forecasts
The BOE now predicts the British economy to expand by 1 percent less over the course of the next three years, compared to August estimates.
Now, the economy is predicted to grow by 1.2 percent this year, down from previous forecasts of 1.3 percent. For 2021, the rate was slashed markedly from 2.3 percent to 1.8 percent.
“Growth in the UK economy has been volatile this year in part because of Brexit preparations. We expect growth this year to be roughly half that in 2018. That is partly because growth in other countries has also slowed,” the Monetary Policy Report said.
The minutes of the meeting also stressed that the BOE may act by cutting interest rates if global growth failed to stabilize or if Brexit uncertainties remained entrenched.
Carney warns of global economic outlook
BOE Governor Mark Carney has started his press conference by warning that the global economic outlook has darkened, given the “low growth, low inflation rut.”
The world economy is now expanding at its slowest rates since 2009, but Britain still has the chance to come out of the woods through a Brexit deal, he said.
Business investment has been persistently weak, and there are signs that the labor market is softening, which would pull growth lower over the near term.
However, the BOE believes growth will pick up afterwards, especially as the Brexit agreement and the extension to 31 January has lowered the perceived risk of a no-deal Brexit.
He explained that the BOE might have to ease
policy, depending on the global growth outlook and Brexit.