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  • Bank of England lowers 2019 growth forecast to 1.3%.
  • BoE notes the QIR does not factor in risk of a no deal.
  • Repeats if Brexit proceeds smoothly, GBP likely to appreciate.  

According to the updated economic projections in the Quarterly Inflation Report, the Bank of England forecasts the economy to expand by 1.3% in 2019, compared to 1.5% reported in May’s publication.

Key highlights from the QIR (via Reuters)

“Inflation report continues to assume a smooth Brexit in growth and inflation forecasts, does not factor in risk of no deal.”

“Inflation in one year’s time at 1.90% (May forecast 1.72%), based on market interest rates.”

“Inflation in two years’ time at 2.23% (May forecast 2.05%), based on market interest rates.”

“Inflation in three years’ time at 2.37% (May forecast 2.16%), based on market interest rates.”

“Market rates imply slower BoE tightening than in May, point to bank rate at 0.6% by early 2022 (February  1.0%).”

“Ses GDP in 2019 +1.3% (May forecast +1.5%), 2020 +1.3% (May +1.6%), 2021 +2.3% (May +2.1%).”

“Expects business investment to fall through rest of 2019, cuts forecast for 2020 to -1.5% (May +3%).”

“Labour market no longer appears to be tightening, pay growth stabilising.”

“Unemployment rate at 3.7% in two years’ time (3.7%), based on market rates.”

“Increased perceptions of likelihood of no-deal Brexit have led to “marked depreciation” of sterling.”

“Forecasts include some inconsistencies due to perceived risk of disorderly Brexit priced into some markets.”

“If Brexit proceeds smoothly, sterling likely to appreciate and market interest rate expectations will rise.”

“More consistent forecast would have somewhat lower paths for GDP growth and CPI inflation after smooth Brexit.”

“When disorderly Brexit risk stripped out of current market prices, smooth Brexit could still lead to inflation overshoot, based on adjusted market interest rate path.”

Markets are now waiting for Governor Carney to deliver his remarks on the policy outlook at 11:30 GMT.

About the BOE interest rate decision

BOE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.