01 August 2019

The Guardian: Bank of England warns of one in three chance of Brexit recession

Britain has a one in three chance of plunging into recession at the start of next year as the heightened uncertainty over Brexit drags down the economy, the Bank of England has warned.

The central bank said business investment was stalling, with trade tensions and slowing demand in the global economy also having an impact on UK growth.

Britain has a 33% probability of falling into recession by the end of the first quarter of 2020 even if a Brexit deal is reached, the bank said, because of the impact from heightened uncertainty.

Mark Carney, the Bank’s governor, said that Britain crashing out would cause an “instantaneous shock” to the economy that would be tough for the central bank to respond to. He warned the pound would be sold off sharply, inflation would rise, while GDP growth would slow further.

“We will do what we can in those circumstances to support jobs and activity. But there are limits to what we can do,” Carney said.

The intervention from Threadneedle Street comes as the pound continued to slide on the international currency markets on Thursday, as the chance of Britain crashing out of the EU at the end of October rises. Sterling fell by 0.2% against the US dollar to $1.2135 and by 0.1% against the euro to €1.0964.

Boris Johnson has ramped up the rhetoric to warn that Britain would be prepared to walk out of the EU without a deal in 91 days’ time, sending sterling tumbling to the lowest levels in more than two years. [...]

“These asset prices reflect market participants’ perceptions of the likelihood and consequences of a no-deal Brexit,” the Bank said.

The pound was also knocked on Thursday by a closely watched manufacturing survey, which showed that output in the sector fell at the fastest pace in nearly seven years in July.

Against the deteriorating UK backdrop, the Bank’s nine-member monetary policy committee (MPC) voted unanimously to leave interest rates on hold at 0.75% on Thursday.

Publishing its quarterly inflation report, the MPC said it expected zero GDP growth in the second quarter of this year, between April and June, “reflecting more entrenched Brexit uncertainties”. It downgraded its forecasts for growth this year and next to 1.3% from a previous estimate of 1.5%, in a development that would mark the weakest economic expansion since 2012. [...]

Full article on The Guardian

Inflation report opening remarks by the Governor 

© The Guardian