Brexit uncertainties are becoming “more entrenched” and increasingly weighing on the British economy less than three months before the country is scheduled to leave the European Union, the Bank of England said Thursday.
The bank’s nine monetary policymakers unanimously decided to keep the bank’s main interest rate on hold at 0.75%. They said heightened fears about the possibility of a no-deal Brexit were hobbling growth and likely to keep business investment in check over the coming months.
In quarterly projections published alongside the interest rate decision, the bank said economic growth in the second quarter is set to be flat, down from 0.5% in the first three months. That, it said, is partly related to the unwinding of Brexit contingency measures that firms took in the run-up to the original March 29 Brexit deadline, as well as a higher probability of a no-deal Brexit and worries over a trade war between the United States and China.
The bank is now forecasting growth this year and next of 1.3%, down from 1.5% and 1.6% respectively. The bank’s forecasts are conditioned on the assumption that Britain will leave the EU with a deal, smoothing its exit.
The pound has fallen sharply in recent days to a 28-month low below $1.21, as new Prime Minister Boris Johnson escalated talk of a no-deal Brexit and put his government on notice that Britain will leave the EU on Halloween, the current Brexit date, come what may.
Most economists think that a no-deal Brexit would plunge the British economy into recession as firms struggle to cope with the subsequent imposition of tariffs on traded goods. The bank has previously warned that a worst-case rupture could see the British economy shrink by 8% in a matter of months after Brexit, though it has since indicated that better preparedness for such an outcome mean that the likely recession would not be as severe.