Bank of England says Brexit uncertainties ‘more entrenched’

“Profound uncertainties over the future of the global trading system and the form that Brexit will take are weighing on U.K. economic performance,” he added.

In its projections that are conditioned on a smooth Brexit scenario, 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 U.S. and China.

The bank cut its growth forecasts for this year and next of 1.3%, down from its previous forecasts of 1.5% and 1.6%.

The pound has borne the brunt of market concerns over a no-deal Brexit, falling around 6% in the three months since the bank last published its projections. Though that may be a boon to exporters, it has the potential to raise inflation by making imports more expensive. Some of those price increases are visible almost immediately, such as fuel and food.

The pound has already 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 a deep 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.

Though learning about potential tariff schedules or stockpiling resources can help cushion the blow, Carney said there would be an “instantaneous shock” to the economy from a no-deal Brexit that would lead to a further fall in the pound, a spike in inflation and lower growth.

Preparations, he said, “cannot eliminate the fundamental economic adjustments to a new trading relationship that a no-deal Brexit would entail.”

Since Britain voted to leave the EU in June 2016, the bank has assumed that its departure would be orderly, that Britain would negotiate a settlement with the EU which would lead to a smooth pathway to a new future trading relationship. Though Johnson’s predecessor, Theresa May, negotiated a deal with the EU, it was rejected by the British Parliament on three occasions.

Johnson has said he wants a renegotiation but won’t join in if the EU rejects opening up the so-called withdrawal agreement. The EU says that’s not open for discussion, hence the rising talk of a no-deal Brexit and the pound’s woes. Though Johnson has embarked on this no-deal path, it’s not clear whether he would be able to push it through given what appears to be a majority in Parliament against. As a result, there’s also growing talk that Johnson may seek to call a general election in the run-up to the Brexit date on Oct. 31 and that he will stand on a no-deal platform.

Were Britain to leave the EU in an orderly fashion, the bank said there would be some upside to the British economy as executives breathed a sigh of relief and put in motion dormant investment plans. However, it did note that a Brexit deal would likely see the pound rise again and that would limit some of the upside.

In a smooth Brexit scenario, rate-setters said growth would accelerate to “robust” levels in the second half of 2020, “reflecting a gradual recovery and firm U.K. domestic demand growth, driven in large part by a recovery in investment growth as uncertainties dissipated.”

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Follow AP’s full coverage of Brexit at: https://www.apnews.com/Brexit

Pan Pylas, The Associated Press

by Canadian Press

Bank of England says Brexit uncertainties ‘more entrenched’

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