Last week UK Prime Minister Theresa May attempted to talk the EU into reopening talks about the Withdrawal Agreement, while worries over the trade war were continued after President Trump confirmed he will not meet with China’s premier Xi Jinping before a 1 March deadline set by both governments to reach a trade deal. Technology companies were once again hit by privacy concerns and growth fears caused the oil price to have its worst week so far this year.
European Commission President Jean-Claude Juncker reconfirmed that the Withdrawal Agreement will not be reopened for negotiation, followings talks held in Brussels with Theresa May. Despite the challenges, the two leaders agreed that their teams should hold talks as to whether a way through can be found that would gain the broadest possible support in the UK Parliament and respect the guidelines agreed by the European Council.
The BoE’s Monetary Policy Committee voted unanimously to hold interest rates, forecasting 1.2 per cent growth this year, down from 1.7 per cent predicted three months ago, the largest downgrade since the 2016 referendum. Although nothing new, it is clearly the softening in economic data combined with the broader global economic conditions, which would suggest the economy could be set for a tougher time.
There is no expectation that the Bank of England (BoE) will alter course on rates, but with the market having priced out a quarter percentage hike since November there is a clear risk to the upside for sterling. But with Brexit uncertainty, the cloudy economic outlook and, seeing this in the broader context of central banks becoming more dovish of late, it would seem unlikely that the BoE will do anything other than tread water.
Activity in the UK’s dominant service sector stagnated in January, with new orders down for the first time in two and half years. The UK construction sector also experienced a loss of momentum last month, with growth in activity slowing to its weakest rate for 10 months.
The European Commission cut its Eurozone growth forecast to 1.3 per cent for 2019, down from its previous estimate of 1.9 per cent. In particular it reduced Italy’s growth forecast to just 0.2 per cent this year down from 1 per cent in 2018, blaming the government’s higher borrowing costs for falling into a recession last year. While the initial slowdown was largely due to less dynamic world trade, the recent slackening of economic activity is more attributable to sluggish domestic demand, particularly investment, as uncertainty related to the government’s policy stance and rising financing costs took its toll.
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