The Bank of England expects economic growth to flatten in the second quarter of 2019, which is worse than original projections of 0.2% growth. However, against the prevailing trend among G7 economies, the UK will hold on to its current interest rate levels.
In the first quarter of 2019, the UK economy grew by 0.5%.
The economic slowdown in the second quarter reflects a decelerating pace of construction, compounded by a sharp drop in car manufacturing. Up until March, various manufacturers stockpiled goods, bracing for the possibility of a no-deal Brexit. Moreover, the UK’s tight labour market supported strong household consumption, boosting GDP growth.
This activity has now stopped and declining business and consumer confidence ahead of a looming Brexit deadline weigh on the economy.
Subsequently, the nine-member monetary policy committee (MPC) of the Bank of England unanimously decided to hold interest rates at 0.75%. UK inflation in May stood at 2%, which allows the bank to hold on to its current interest rate levels even as the economy is slowing down. That goes against the prevailing trend, as both the European Central Bank and the US Federal Reserve are bracing to cut interest rates or even relaunch quantitative easing measures.
Holding on to current interest rate levels provided a small boost for the pound. However, there is a wait-and-see attitude as the odds of the UK leaving the EU without a Withdrawal Agreement are rising.