Britain's economy is heading for its weakest year since the financial crisis a decade ago, the Bank of England said today as it unveiled its latest forecasts for the UK economy.

The Bank slashed its economic growth forecast for 2019 to 1.2% - warning that Brexit uncertainty has started to take a serious toll on the economy.

Its forecasts imply there is a one in four chance the UK economy dips into a recession.

The downgrade means Britain's gross domestic product is expected to expand even less this year than it did in 2012, when economists feared a double-dip recession in the face of the euro crisis.

The Bank also signalled that there was only likely to be one increase in interest rates between now and the end of next year, compared with its previous forecast which implied two increases in the cost of borrowing.


The nine-member Monetary Policy Committee voted unanimously to leave interest rates unchanged at 0.75% this month.

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Image: Bank of England governor Mark Carney

The Bank's Inflation Report, its three-monthly survey of the state of the economy, will be seen as further evidence of the economic impact of Brexit.

Bank of England governor Mark Carney said the "fog of Brexit" had created tensions for businesses, households and financial markets.

The Bank said that about half of all firms it surveyed had now activated their contingency plans to confront a no-deal Brexit, and that uncertainty around the economy had risen sharply.

That, in turn, had encouraged firms to begin stockpiling and to cut back sharply on investment.

Mr Carney said: "In the context of Brexit, uncertainty itself is one of the factors driving the outlook for growth and inflation."

He added that there were still "almost as wide a range of possibilities as there were the morning after the referendum".

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The governor warned: "That level of uncertainty and the proximity of the Brexit date is having a much bigger effect on business decisions which is cascading down through the economy."

Brexit uncertainty has coincided with a broader economic slowdown elsewhere around the world, prompting the Bank to cut its growth projection from 1.7% to 1.2% this year and from 1.7% to 1.5% in 2020.

However, the Bank said there was a chance the economy could bounce back sooner and faster than those central forecasts if there was a sudden fall in uncertainty about the UK's future path beyond Brexit.

The Bank provided forecasts that imply a sizeable boost in growth, to 1.6% this year and 2.2% growth next year should the fog of uncertainty lift.

The Bank said it expected inflation to remain close to its 2% target for most of the next two years.

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In its minutes, the Bank said: "Since the committee's previous meeting, key parts of the EU withdrawal process had remained unresolved and uncertainty had intensified.

"Businesses had appeared increasingly to be responding to Brexit-related uncertainties, and there were some signs that those uncertainties might also be affecting households' spending and saving decisions."

The pound fell by a cent to less than $1.29 after the Bank published the report.