Carney says Brexit uncertainty hits economy

RBI cuts repo rate in first policy review under new governor

RBI cuts repo rate in first policy review under new governor

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 Bank cut its United Kingdom growth forecasts to 1.2 per cent in 2019 - from a previous 1.7 per cent projection - citing mounting Brexit uncertainty and a global economic slowdown.

Brexit is causing the United Kingdom economy to weaken, it said, cutting its 2019 growth forecast to just 1.2%, the lowest since the financial crisis.

The Bank revised down the 1.7 per cent growth forecast it made in November to 1.2 per cent, making this the slowest rate of expansion since the recession of 2009.

The Governor of the Bank of England, Mark Carney leaves after a news conference at the Bank of England in London, Britain February 7, 2019.

"The market now sees nearly no likelihood of a rate hike in the United Kingdom in 2019, so Carney in his roughly 6 and a half year time as Governor has managed just the one hike (if you ignore the emergency post referendum knee-jerk cut and subsequent hike a year later)".

A Reuters snap poll taken immediately after Thursday's policy review - where the RBI unexpectedly reduced interest rates by 25 basis points - showed the central bank will make the same move next quarter.

Sterling initially fell a quarter of a cent against the dollar, touching a two-week low, but was up on the day after Carney told reporters of the probability of an economic pick-up after a Brexit deal that would usher in a rate hike.

Rates are likely to increase further in the coming years, but the timing of any rate hikes remains unclear, particularly with the looming spectre of a possible no deal Brexit hanging over the UK. Modi's government has been pushing the RBI to transfer more of its excess capital to the state as well as ease lending restrictions on banks to spur growth. United Kingdom officials noted the impact of China's slowdown and said trade wasn't contributing as much to growth as they expected.

Indian shares pared gains, while 10-year bond yields slid three basis points after the surprise rate cut.

He said the future was "highly uncertain" and pointed to betting markets only offering a 30% chance the United Kingdom will leave the European Union bloc on 29 March.

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.

But it said the growth hit was expected to be short-lived, with a recovery in expansion later in 2019 - though this is based on a Brexit deal being reached by March 29.

The move balances the downward correction of the inflation forecast with the "uncertainties and risks related to the inflation outlook stemming from the new set of fiscal and budgetary measures effective January 1, 2019".

In its accompanying quarterly inflation report, the Bank outlined the volatility of its forecasts depending on the outcome of Brexit negotiations. Nevertheless, the forecasts suggested that just one more quarter-point hike would be needed in the next three years to return inflation to close to the 2 percent target, down from nearly three hikes seen in November.

On the flip side, growth could slump to a potential 0.8% in 2019 should uncertainty persist and financial conditions tighten.

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