The Bank of England’s (BoE) actions taken on Thursday to cut interest rates, expand its bond buying program and to set up a new funding scheme will likely help limit the cushion the negative shock that the Brexit vote will cause on the U.K. economy, but won’t completely offset it, says Fitch Ratings Inc. in a new report.
“The balance sheet expansion goes beyond our expectations and includes innovative measures to mitigate potential unintended consequences of policy easing,” the Fitch report says.
Coupled with previous measures to limit the effects of the vote on banks in the U.K., Thursday’s decision will help reduce the risk of a significant tightening in credit conditions that would compound the impact of the Brexit vote, the report adds.
“But they will not outweigh the impact on investment as firms reduce capital spending due to sharply heightened uncertainty surrounding the U.K.’s future international trading arrangements outside the EU and related political and regulatory uncertainty,” the report says.
Indeed, Fitch now forecasts real gross domestic product growth of 1.7% in the U.K. this year, down from its earlier forecast of 1.9%, and expects growth will fall to 0.9% in 2017 and 2018.