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No-deal Brexit would slow UK growth, hit pound: Bank of England

Cuts growth forecast


The Bank of England has cut its forecasts for UK growth over the next two years. It came as policymakers warned that a no-deal Brexit would hit the economy and trigger a further drop in the value of the pound.

The Bank left interest rates unchanged at 0.75% against a backdrop of weaker global growth.

It also cited ongoing trade tensions between the US and China.

The Monetary Policy Committee (MPC) that sets interest rates believes the UK economy stagnated in the three months to June.

It also predicts modest growth in the coming months amid ongoing uncertainty over the UK's future relationship with the European Union.

However, it said the UK economy was expected to grow by 1.3% this year, down from a previous projection of 1.5% in May.

The Bank also cut its forecast for growth in 2020 to 1.3%, from a previous projection of 1.6%.
Why has it cut its outlook for the UK?

The Bank's quarterly Inflation Report said global trade tensions were weighing on the UK outlook.

It also said there had been a "material and broad-based slowdown" in world growth since the end of 2017.

It said the risk of a drop in growth - which could include a technical recession - in the coming year was the highest since August 2016.

Policymakers said the jobs market remained strong, although they also noted there were signs that the unemployment rate was likely to stay around the current rate of 3.8%.
What is the outlook for interest rates?

The Bank's forecasts for steady growth, inflation and employment are all based on the assumption of a smooth Brexit, in which the UK leaves with a deal.

It said that in this scenario it "would be appropriate" to raise interest rates to stop the economy from overheating.

However, it also spelled out the implications of a no deal Brexit for the first time, stating that it would probably lead to slower growth, higher prices and a weaker pound.

The Bank has previously stated that it may not automatically cut interest rates in this scenario.

Governor Mark Carney has also warned that there are limits to the extent to which policymakers can stimulate the economy if the UK leaves the EU without a deal.
What effect is Brexit having on the economy?

Policymakers said UK economic growth was "likely to remain subdued over the coming year, with Brexit-related uncertainties weighing on spending to a greater extent than in May".

The Bank's latest survey of businesses showed that 90% of them had implemented contingency plans ahead of a previous March Brexit deadline.

Three quarters of respondents said they were also "as ready as they can be" for a no deal scenario.

However, the Bank warned that "material risks of economic disruption remain".

It noted that 240,000 businesses that currently trade solely with the EU were not ready for sudden EU border inspections in the event of no deal.

Many others did not have the right documents to keep selling to the EU if the UK left the bloc without a deal.

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