Published: Sat, February 09, 2019
Money | By Ralph Mccoy

Has India’s central bank given a pre-election boost to Modi?

Has India’s central bank given a pre-election boost to Modi?

Private-sector business surveys have suggested the economy has slowed to a crawl and the BoE said on Thursday that half of the businesses it surveyed had begun to prepare for a no-deal Brexit.

The central bank on Thursday slashed its 2019 economic growth forecast to 1.2 percent from its previous estimate of 1.7 percent, made as recently as November.

The Bank cut this year's growth forecast to 1.2% - the lowest since 2009, when the economy was in a recession following the financial crisis.

The Bank of England on Thursday (Feb 7) slashed its forecast for United Kingdom 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".

If Britain finalizes and approves a deal for a smooth Brexit transition, the British economy and household spending could get a boost, Carney said.

"The fog of Brexit is causing short term volatility in economic data, and more fundamentally is creating a series of tensions in the economy", Bank of England Governor Mark Carney said at a press conference.

The European Union and Britain agreed to hold further talks to try and save their Brexit deal, after May met European Commission head Jean-Claude Juncker in Brussels on Thursday.

He added: "If and when we do leave, an orderly Brexit could see the Bank refocus on wage growth and raise rates later this year, though markets now price this as a 50/50 chance".

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Rain Newton-Smith, the chief economist at the CBI, the business lobby group, said: "It's now crunch time - a no-deal scenario must be taken off the table because the economy is seizing up from uncertainty". A clarification from the central bank is awaited.

It said the United Kingdom economy is set to grow by just 1.2 percent this year instead of 1.7 percent as predicted just three months ago. A sharper-than-expected slowdown in the global economy is also impacting United Kingdom growth, according to the Bank.

Sterling at first weakened on the news but quickly recovered to trade flat on the day against the dollar at 1.29 and higher against the euro at 1.14.

This is being driven by sharp falls in business investment, as well as a drop in consumer spending and signs of a weaker United Kingdom housing market.

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

The Bank said on the flip side, growth could slump to a potential 0.8 per cent in 2019 should uncertainty persist and financial conditions tighten. The Federal Reserve has changed direction, and now many analysts expect no United States rate hikes this year, after four in 2018.

The year over year change in consumer price inflation dropped from 3.4 percent in October to 2.2 percent in December, its lowest level in eighteen months.

In its minutes, the Bank continued to stress that interest rate rises were likely to be needed "at a gradual and to a limited extent".

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