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BOE Warns on Global Economic Outlook as It Holds Rates Steady

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06/20/2019 | 07:26am EST

By Jason Douglas

LONDON--The Bank of England left its benchmark interest rate unchanged as it cautioned of rising trade tensions darkening the outlook for the global economy.

The BOE nevertheless said it expects to slowly nudge up interest rates in the next two to three years if the U.K.'s planned exit from the European Union goes smoothly.

That makes the BOE stand out among major central banks, as both the U.S Federal Reserve and the European Central Bank have in recent days signaled that they expect to ease policy in the coming months if the global economy loses momentum.

Officials on the BOE's Monetary Policy Committee voted unanimously to leave the U.K. central bank's main policy rate at 0.75% at their June meeting, the BOE said Thursday.

The panel said the British economy is likely to slow in the second quarter and inflation will soon drop below its 2% annual target, reflecting the fading boost from stockbuilding in the first quarter and falling energy prices.

BOE officials said the British economy's prospects are closely linked to the U.K.'s planned exit from the European Union, currently scheduled for Oct. 31.

Sterling fell after the BOE's statement, with GBP/USD falling to 1.2694 shortly after from 1.2723 beforehand. GBP/USD was last up 0.5% at 1.2705.

Several candidates vying to replace Theresa May as U.K. prime minister--including frontrunner Boris Johnson--have said they would be prepared to take the U.K. out of the bloc without a negotiated withdrawal deal if the EU won't reopen the agreement inked with Mrs. May. They argue the current withdrawal package would leave the U.K. too closely bound to the EU.

A no-deal Brexit would likely cause severe disruption to the British economy, economists say, scrambling the BOE's interest-rate plans.

The central bank said Thursday that it is ready to cut rates or raise them in such a scenario, depending on how the economy responds. Most economists expect officials' first move would be to cut borrowing costs to support growth.

Write to Jason Douglas at jason.douglas@wsj.com

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(MORE TO FOLLOW) Dow Jones Newswires

06-20-19 0725ET

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