The Bank of England has cut its forecasts for UK growth over the next two years, blaming Brexit uncertainty and weaker global growth.
The Bank said the UK economy was expected to grow by 1.3% this year, more than 15 per cent down from a previous projection of 1.5% in May, and also cut the forecast for 2020 by more than 18 per cent to 1.3%, down from an initial projection of 1.6%. These projections are based on the assumption that the UK will find a deal with the European Union, but the Bank warned growth could be much slower if the UK crashes out of the union without on WTO terms.
The Bank’s quarterly Inflation Report said the employment market was predicted to remain strong over the coming months, but the risk of a technical recession in the coming year was currently at the highest since August 2016.
The Bank’s Monetary Policy Committee (MPC), which sets interest rates, said the UK economy stagnated in the three months to June, but with slow growth predicted over the coming months it left interest rates unchanged at 0.75%. However, it warned that a no-deal exit from the EU would probably lead to slower growth, higher prices, and a weaker pound.
The Bank has previously said it would cut interest rates, reducing the cost of taking out a loan, in the event of a no-deal exit, but Governor Mark Carney made clear there were limits the extent policymakers could stimulate the economy if the UK fails to find a deal with the EU and is left trading globally under the high tariff WTO system currently being promoted by parts of the Conservative Party.
The report explained the majority of businesses had now implemented contingency plans for a no-deal Brexit but cautioned that “material risks of economic disruption remain”.
It also noted that nearly quarter of a million (240,000) UK businesses trade solely with the EU, and the sudden implementation of border inspections at EU ports and additional documentation requirements in the event of a no-deal exit could cause severe consequences for millions of workers.
The report comes as newly appointed Prime Minister Boris Johnson’s promise to pull the UK out of the EU “do or die” faces its first electoral test in the Brecon and Radnorshire by-election, where the incumbent Conservative MP Chris Davies became the second ever MP to be recalled by petition after being convicted of making a false expenses claim in March. He is standing for re-election against Jane Dodds, a “Remain alliance” candidate backed by the Liberal Democrats, Greens, and Plaid Cymru, Labour candidate Tom Davies the Brexit Party’s Des Parkinson, UKIP’s Liz Phillips, and Lady Lily The Pink of the Official Monster Raving Loony Party.