Britain has a one-in-three chance of entering recession even if a Brexit deal is agreed by October, says Bank of England
BRITAIN has a one in three chance of entering recession early next year even if a Brexit deal is agreed by October, the Bank of England warned.
And in the event of a no deal exit from the EU, the Bank’s governor Mark Carney — criticised for being too gloomy on Brexit — believes that the economy would suffer an “instantaneous shock”.
That would see the Pound fall, inflation rise and growth slow.
The dire warnings came in the Bank’s latest economic forecasts, released as interest rates stayed at 0.75 per cent.
In a rare bright spot, the central bank raised its UK growth outlook for 2021 from 2.1 per cent to 2.3 per cent.
But it cut its central forecast for growth this year and next, predicting output will expand just 1.3 per cent in both 2019 and 2020 even if it cut interest rates, as markets have been expecting.
Yael Selfin, chief economist at KPMG, called this assessment of the economy’s short term prospects “sombre”.
'PROLONGED NEGATIVE IMPACT'
She added: “The Bank of England is now expecting uncertainty to have a more prolonged negative impact on business investment, causing a downgrade to its latest projections and signalling the challenges facing businesses over the short-term.”
Mr Carney said the Bank would “take all appropriate measures” to support jobs and growth in the event of a no-deal Brexit.
However, he stressed there were “limits” to what it could do given the Bank’s main monetary tool is interest rates.
And he reiterated that rates could go in either direction in a no-deal scenario.
The Bank would then have to balance the need to cool inflation caused by the plunging Pound, while providing support for a flagging economy.
The pound has already tumbled by six per cent since the Bank’s last inflation report in May as no-deal fears ramp up.
While the Bank’s monetary policy committee voted to keep interest rates at 0.75 per cent while it waits for a clear outcome on Brexit, it has not ruled out raising rates in the medium term.
In a smooth Brexit deal scenario and recovering global economy, the MPC yesterday repeated its mantra that “gradual” and “limited” rate rises would be needed.
The latest rates decision comes after the US Federal Reserve voted to reduce its benchmark interest rate by a quarter point late on Wednesday — America’s first cut since 2008.
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