LONDON: The Bank of England on Thursday slashed its forecast for UK growth this year to 1.2 per cent from 1.7pc, 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 0.75pc.

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

Bank of England governor Mark Carney warned that Britain was “not prepared” for a no-deal Brexit.

“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 Brexit 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 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.

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 1.2pc, it will be the country’s weakest output in a decade.

In November the BoE had forecast 2019 growth of 1.7pc.

“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 1.5pc from 1.7pc The downgrades sent the pound sinking under $1.29, 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 XTB analyst David Cheetham.

Global slowdown: 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.

Published in Dawn, February 8th, 2019