Wall Street is trading higher after the opening bell.

• Dow Jones up 21.4 points, or 0.08%, at 26,885
• S&P 500 up 1.96 points, or 0.07%, at 2,982
• Nasdaq up 20.57 points, or 0.25%, at 8,195

Here is our economics editor Larry Elliott’s take on the Bank of England’s projections.

Here is our full story on the pound sinking to a fresh 2 1/12 year low against the US dollar today, below $1.21. It is currently hovering just above $1.21, down 0.4% on the day, and is largely flat against the euro at €1.0973.

The main reason is the strengthening of the dollar after the Fed made clear that yesterday’s rate reduction was not the beginning of a long series of rate cuts, while the pound is also under pressure from growing nervousness around a no-deal Brexit.

That was the last question at the Bank of England’s press conference.

Question: You are just a bunch of gloomsters, talking the economy down?

Carney appears unfazed. (It’s not the first time he has faced this question.) He replies:

We give our best view of where we expect the economy to go.

He then notes that uncertainty has increased due to Brexit.

It’s also clear that there has been a substantial shortfall in investment.

The trade response to lower sterling has begun to fade, in part due to weaker global [demand].

He adds that the Bank sets policy in a way that supports the economy, and took appropriate action after the 2016 referendum.

Carney says that markets functioned well after the shock 2016 Brexit vote – “heavy volumes, big moves in sterling but the markets functioned well”.

He says it is “highly, highly unlikely” that the Bank will need to take action to stabilise markets if there is a no-deal Brexit.

What one wants when you have a big economic shock and we’ve learned this, and we are a firm believer in it, is that markets adjust.

Carney says the Bank will publish an updated version of its worst-case Brexit scenario after the Treasury select committee reconvenes in September, after receiving a request from the parliamentary committee.

Here are some of the Bank of England governor’s earlier comments on no-deal Brexit in full.

In the event of no-deal, no-transition Brexit, sterling would likely fall, the risk premiums on UK assets would rise and volatility would spike higher.

Similarly preparations by governments and businesses for no deal are vital to reduce the potentially damaging transition costs to a WTO [World Trade Organisation] relationship with the EU. But those preparations cannot eliminate the fundamental economic adjustments to a new trading arrangement that a no-deal Brexit would entail.

Question: what would a no-deal Brexit mean for the global economy?

Carny replies that it would be “an unwelcome development for the global economy” and that multilateralism is already under some strain.

This would be part of that narrative and it’s creeping into the way businesses organise themselves, in particular how they organise their supply chains.

You can watch the press conference live here.

Asked if there would be a massive stimulus after a no deal, Carney responds that it depends on the situation, and that the Bank “will do what we can” but “there are limits” – as the Bank would still need to achieve its inflation target.

He says there could be trade disruption – problems at ports – and supply disruption.

We will have to take a judgement in that event whether on balance the inflationary pressures ... whether we can look through those and provide support to the economy as it adjusts.

We will do what we can in those circumstances to support jobs and activity but there are limits.

UK households at the moment are acting prudently, spending within their means, Carney says. He notes that there is a strong labour market and wages are growing at the fastest pace since before the financial crisis in 2008.

Here is a chart illustrating the central growth forecast from the Bank of England’s inflation report.

Question: What is the probability of no-deal at the end of October?

The financial policy committee at the Bank of England has assumed the possibility of no deal all along, says Carney, and the core financial sector is ready for no deal.

He says the prime minister has been clear that his policy is to get a Brexit deal.

The Institute of Directors said the Bank was right to keep rates unchanged, but must not shy from taking pre-emptive action in the shape of a pre-Brexit cut, if a no-deal outcome looks likely.

Tej Parikh, the IoD’s chief economist, said:

With limited visibility, the Bank of England is right to err on the side of caution today by holding interest rates steady.

As it stands, the MPC still needs further clarity on the nature of Brexit and the effectiveness of the new Government’s preparations before wading into what are now critical changes in monetary policy. Though the recent decline in sterling could lead to higher inflation down the line, right now uncertainty and hiccups in global growth are pinching economic activity and elevating the risk of a downturn.

All eyes will be on the MPC’s September meeting. If a disorderly exit from the EU is on the cards, the Bank must not shy away from lowering interest rates in advance to support businesses and households through the turbulence. Waiting until after the fact could lower the impact of any action taken.

While inflation is set to rise over the next two to three years due to the weaker pound, it will initially fall, by half a percentage point below the 2% target in coming months as lower energy bills feed through, Carney says at the press conference.

Here is some reaction from economists.

Mike Jakeman, senior economist at PricewaterhouseCoopers, says:

It was no surprise that the Bank of England kept interest rates on hold. Uncertainty in the UK economy remains acute, given the multiple different Brexit scenarios that are still in play. We expect the Bank to keep rates on hold until a clear outcome on Brexit has been determined. Lower interest rates are likely in the event of a no-deal scenario, while if a deal is struck and economic growth is maintained, the Bank would be likely to pursue its previous course of raising interest rates slowly. For now, inflation is not a major issue, as it remains close to the Bank’s target of 2%.

The Bank noted that Brexit uncertainty has become entrenched in the economy in 2019 and that this has pulled down the rate of economic growth to below trend. Our view on the economy is similar: we expect growth of 1.4% this year and 1.3% in 2020, on the assumption that a no deal Brexit is avoided. The Bank reduced its forecasts in its accompanying inflation report to 1.3% in both years. Subdued growth is likely to continue until businesses are provided with clarity on Brexit. Thereafter, a very wide range of outcomes are possible, depending on the access granted to the UK’s main trading partners in Europe.

Bank of England governor Mark Carney has kicked off the press conference. He is reading out his opening remarks.

The pound is trading at $1.2115 now, down 0.37% on the day – similar to where it was just before the Bank of England rate decision and economic projections were released.

It has firmed slightly against the euro to €1.0982.

The FTSE 100 index is also still down – by some 20 points at 7,567.42, a 0.25% drop.

On the other hand, if there is a downturn due to Brexit, the Bank could cut rates or take other action, it hinted:

Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate path of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the exchange rate.

The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. In all circumstances, the committee will set monetary policy appropriately to achieve the 2% inflation target.

If there is a smooth Brexit and the economy holds up, interest rates may well rise, the Bank of England said in its quarterly inflation report.

Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target.

Here is our story, from the Guardian’s economics correspondent Richard Partington stationed at the Bank of England.

He writes:

Despite the growing risks to the economy, the Bank said it continued to assume a smooth Brexit deal with Brussels can be reached – a position it acknowledged was increasingly inconsistent with the market reaction.

Should Britain crash out without a deal, the Bank warned the pound could drop sharply and inflation would rise and GDP growth would slow further.

The Bank of England is now forecasting GDP growth of 1.3% for 2019 and 2020, down from 1.5% and 1.6% respectively in its previous projections in May. The forecasts assume Britain avoids a disorderly Brexit.

The Bank expects inflation, which is currently on target at 2%, to exceed its target in two and three years’ time, and by a greater margin than it predicted in May.

The Bank of England also warned that Britain has a one in three chance of plunging into recession as uncertainty over Brexit drags down the economy, writes our economics correspondent Richard Partington.

Threadneedle Street pencilled in zero growth for GDP in the second quarter even before Britain leaves the EU.

The central bank said:

Underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade.

The Bank noted that the increased risk of a disorderly Brexit had led to a “marked depreciation of the sterling exchange rate” – which is near a three-year low against a basket of major currencies – and that since mid-July, business uncertainty about Brexit had become “more entrenched”.

Bank of England policymakers voted 9-0 to hold the key interest rate at 0.75%.

Sterling is now 0.6% lower against the dollar at $1.2086, and has fallen 0.23% against the euro to €1.0955.

The Bank of England is in a difficult position. On the one hand, the sharp fall in the pound threatens to push up inflation, which would normally warrant high interest rates, but on the other hand the UK teeters on the brink of a cliff-edge Brexit, which could plunge the economy into recession.

Ipek Ozkardeskaya, senior market analyst at trading platform London Capital Group, has looked at this dilemma more closely:

The significantly cheaper pound is a rising threat for inflation in Britain. Increasingly expensive imported product prices should translate into a higher consumer price inflation sooner rather than later.

Henceforward, the BoE policymakers have a hard task. In one hand, they should give the necessary support to the UK’s economy threatened by a messy Brexit and a kneejerk economic shock in the immediate aftermath of the separation that could happen as early as October 31st.

On the other hand, the stiff depreciation in pound gives them a tight manoeuvre margin for setting up a dovish monetary policy given that the annual inflation is already at the 2% level and the pound continues bleeding. Although a BoE rate cut is unimaginable right now, the heavy sell-off in sterling could invigorate the BoE hawks. And if Boris Johnson lets the pound fall free, then Mark Carney may have no choice but to open the parachute.

Reuters have spoken to Gary Lacey, who was buying euros at a money exchange shop in London’s Canary Wharf ahead of a four-day trip to Austria. “I’m disappointed rather than surprised,” he said of the pound’s latest move lower.

He recalled the strong euro-sterling rates of the early 2000s, before the pound was pummelled by the global financial crisis and Brexit.

The days of €1.60 are probably long gone. But you have to pay or you just don’t go on holiday.

UK holiday makers heading abroad in August will be feeling the effect of the weaker pound, which lurched lower again today. Sterling is currently trading close to a 2 1/2-year low of $1.2101 hit overnight. It is off 0.38% at $1.2112.

The main reason behind the latest decline is the Fed – its chairman Jerome Powell made clear that yesterday’s interest rate cut was not the beginning of a lengthy easing cycle, which lifted the dollar to two-year highs against the euro and other major currencies.

But sterling has been under pressure for some time as fears of a no-deal Brexit have intensified in recent days, given the rhetoric from new British prime minister Boris Johnson’s government. The weak manufacturing survey is not helping either.

The pound has lost about 7% of its value against the euro since mid-May.

Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, believes UK consumers will continue to offset weak manufacturing production through their spending.

The manufacturing sector is reeling from the twin hits of the global slowdown and the shift in the timing of orders due to the original Brexit deadline in March.

Manufacturers, however, remained relatively optimistic about the outlook, with 46% expecting output to be higher in a year’s time and only 10% anticipating contraction. In addition, demand should start to ramp up soon as manufacturers’ customers rebuild their stocks again ahead of the October Brexit deadline, though many appear to have maintained unusually high inventory levels over the summer.

Looking through the volatility created by the October Brexit deadline, manufacturing likely will drag modestly on growth even if a no-deal Brexit is avoided, due to weak global demand. But with consumers set to enjoy a burst from strong real disposable income growth, thanks partly to a renewed fall in inflation, we continue to expect GDP growth to be close to its trend rate in the second half of this year, persuading the Bank of England to keep Bank Rate on hold, rather than follow other central banks with more stimulus.

Seamus Nevin, chief economist at Make UK, the manufacturers’ organisation, said this bodes badly for the UK economy as a whole.

Today’s numbers prove that the UK economy is undeniably on a downward trajectory with output, new orders, and employment all falling again. Companies are cutting back on both day-to-day spending and capital investment as the downturn in activity continues, reflecting growing fears of a crash out Brexit and worrying global trade conditions.

This is not a good time for our economy to be preparing to go it alone. Eurozone Manufacturing PMI also fell, signalling the quickest decline in the region’s manufacturing sector since the peak of the global financial crisis in 2012. This came off the back of the two major economies of France and Germany each suffering a renewed decline.

The downturn experienced by the UK’s main trading partners, and slower world economic growth, combined with foreign customers routing supply chains away from the UK in advance of Brexit has hit British business hard in recent months.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, added:

A killer combination of economic uncertainty and the weakest production levels for seven years, battered the manufacturing sector into contraction for the third consecutive month in July.

New orders fell as businesses used up stockpiled materials, EU businesses moved supply chains out of the UK and weakness in the global economy stifled demand from both domestic and export markets.

Unsurprisingly the decline in employment levels followed suit with one of the sharpest cuts to jobs for more than six years as businesses hesitated to keep calm and carry on and build staff levels.

However, optimism for the future stayed relatively buoyant, he noted, in the hope that certainty will once again return to UK shores soon and in spite of the increase in no-deal Brexit rhetoric.

Rob Dobson, director at IHS Markit, which compiles the survey, said:

July saw the UK manufacturing sector suffocating under the choke-hold of slower global economic growth, political uncertainty and the unwinding of earlier Brexit stockpiling activity. Production volumes fell at the fastest pace in seven years as clients delayed, cancelled or re-routed orders away from the UK, leading to a further decline in new work intakes from both domestic and overseas markets.

The headline manufacturing index has signalled a contraction in the eurozone for six months in a row. The reading of 46.5 pointed to the sharpest deterioration in operating conditions since December 2012, IHS Markit said.

Factory output and orders are both down markedly as confidence hit its lowest level since December 2012. Firms are also hiring less, with employment recording its sharpest reduction in more than six years.

IHS Markit said:

Germany remained a source of weakness, with its manufacturing economy recording its sharpest deterioration in operating conditions for seven years. Austria recorded its lowest PMI level in just under five years, whilst there were also below 50.0 readings seen in France, Ireland, Italy and Spain.

In contrast, the Netherlands and Greece continued to expand, although growth in the former was only marginal and unmoved on June’s six-year low.

Turning to France, the eurozone’s second-largest economy after Germany: Its manufacturing sector has gone into decline, according to the latest PMI survey, with the headline reading falling from 51.9 to 49.7 in July – below the 50 mark that separates expansion from contraction.

In Spain, manufacturing is also still declining despite a slight improvement.

The closely-watched PMI manufacturing surveys have started to come out.

The Italian survey signals a further decline in manufacturing in July, although there has been a slight improvement. A reading below 50 indicates contraction; a reading above points to expansion.

James Knightley, chief international economist at ING, noted that the Fed “never cuts rates just once”. He said how the US-China trade war pans out will be critical.

We characterise this as an early pre-emptive move to help ensure the longest US economic expansion on record continues. It will likely ease again, but not by as much as the market is pricing in...

Domestic demand is strong, asset prices are high, the labour market is robust and even the manufacturing sector has shown renewed signs of life thanks to the US-China trade truce. Indeed, the strength of the consumer sector can certainly offset some of the headwinds from lingering global growth worries.

Nonetheless, the Fed continues to highlight the “uncertainties” and it is the trade story that remains critical to the outlook for policy. This is very firmly in President Trump’s hands. Should tensions escalate once again, tariffs are hiked, markets sell-off and economic weakness spreads then the Federal Reserve will respond with more stimulus given the benign inflation backdrop.

Some economists agree with the Fed’s assessment that a series of aggressive rate cuts are not warranted, arguing that the US economy is in pretty good shape. (Some say the Fed should not have cut rates at all.)

Mark Haefele, chief investment officer at UBS Global Wealth Management, said:

Financial markets continue to expect that further easing will be necessary to protect growth, and after today’s move are still pricing in two or three additional 25bps rate cuts by the end of 2020.

We believe this is excessive, given the relative resilience of the US economy to-date and recent evidence that suggests inflation may be bottoming out. Barring a marked deterioration in the economic outlook, we expect the Fed to implement at most one more 25bps cut and then to remain on hold through the end of 2020.