The bank revealed that a weakening of global growth prevented the UK economy from reaching its full potential, a problem which the bank believes will intensify if the government fails to secure a Brexit deal by October 31. The bank’s minutes warned: “The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply. In such an eventuality, domestically generated inflationary pressures would be reduced. “In the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow.”
In some positive news, the bank went on to suggest that the UK will probably avoid a recession this year. Despite “Brexit-related developments” making economic data increasingly volatile, the BoE predicts the Q3 economy will expand by 0.2 percent.
Meanwhile, Wednesday evening saw the US Federal Reserve slash interest rates for the second time this year, with Fed Reserve Chairman Jerome Powell calling the rate cut an “insurance against ongoing risks”.
The dollar edged higher as Mr Powell described the economic outlook for the country as “favourable” but left investors guessing about the bank’s next move, offering none of the expected signals on future policy decisions.
Looking ahead to Friday, the US Dollar could slump following speeches from the New York Fed President John Williams and Boston Fed President Eric Rosengren.
The Federal Open Market Committee (FOMC) remains divided, with Mr Rosengren voting against Wednesday’s rate cut.
If either member discusses monetary policy any mixed signals could put the dollar under renewed pressure.