Bank of England boss Mark Carney has said interest rates may need to be slashed if global and Brexit headwinds do not ease.
The Bank governor suggested a cut could be on the cards after two of the central bank’s nine-strong Monetary Policy Committee (MPC) voted for lower rates in their latest meeting.
The committee also suggested that hard times could be ahead after downgrading economic growth forecasts for the next three years on the back of Boris Johnson’s Brexit deal and the continued slowdown in the global economy.
Two committee members – Jonathan Haskel and Michael Saunders – made the first call for a cut in more than three years, despite economists predicting the MPC would unanimously hold rates.
Members of the group had previously suggested they could vote for a cut if Brexit delays continued.
However, the governor remained coy, suggesting that both a cut or rise could be possible due to the impact of the “pretty big tectonic forces” affecting the world and UK economies.
He added that an increase “may be needed” if uncertainty around Brexit and the global economy significantly fades.
The seven-to-two vote was the first time in more than a year that the Bank had faced a split decision and highlighted current appetite for a cut.
In recent months, the European Central Bank (ECB) and the US Federal Reserve have both reduced interest rates to deal with economic slowdowns.
However, Mr Carney said that the Prime Minister’s new Brexit deal has helped to reduce some uncertainty and said that business investment could pick up.
The MPC increased its forecast for UK GDP in 2019 to 1.4% from 1.3% as Mr Carney added that he expects the UK will not enter a recession when quarterly GDP figures are revealed.
Kerstin Braun, president of international trade finance provider Stenn Group, said she suspects interest rates could be cut by early 2020.
She said: “Mark Carney is right to hold rates for now. Brexit and trade worries have been weighing on the economy and now a snap General Election has been thrown into the mix.
“But even if we avoid a Brexit crash out, or if Brexit is scrapped all together, the UK is slowly running out of gas, driven down by persistent uncertainty and the flagging global economy.
“The MPC has been hinting at a rate cut for a while, with or without a confirmed Brexit deal, but it’s likely to be at least three more months of paralysis before we see a move.”