Brexit uncertainty cascading through the economy

Growing Brexit uncertainty is cascading through the UK economy, delaying business decisions and hurting consumers, according to Bank of England (BoE) Governor Mark Carney .

Carney was speaking after the central bank delivered a pessimistic view of the UK’s outlook, forecasting growth this year at the lowest since 2009, while predicting a dramatic slump in investment and lowering its prediction for pay gains. The “fog of Brexit” is also creating tensions, Carney said.

The UK is now just 50 days away from a March 29 deadline to leave the European Union, and an agreement for its new relationship settled has yet to be settled.

The economy isn’t ready for a no-deal, no-transition Brexit, Carney said, adding that the probability of such an outcome has increased. A chaotic exit would increase the chance of a quarterly contraction in economic output, he said.

The BoE is the latest central bank to take a downbeat turn this year, after recent dovish statements from the US Federal Reserve and European Central Bank. The bank now forecasts 1.2 percent growth this year, down from 1.7 percent predicted three months ago, the biggest downgrade since the 2016 referendum. It also lowered its forecast for pay growth — currently a rare bright spot for the UK — for 2019 and 2020.

The global backdrop has weakened, as highlighted in the European Commission’s sweeping cuts to the euro-area economic outlook yesterday. The UK officials noted the impact of China’s slowdown and said trade wasn’t contributing as much to growth as they expected.

The pound declined after the report was published, before erasing its losses. It was little changed at $1.2944 as of 1:36pm. in London. In the press conference, Carney stuck to his line that more rate increases will probably still be necessary to keep inflation in check.

The forecasts came alongside the latest policy decision by the Monetary Policy Committee. It voted 9-0 to hold the key interest rate at 0.75 percent, as predicted by all economists in a Bloomberg survey. The bank last lifted the rate in August.

With Brexit hanging over the outlook, the bank said that its forecasts would need to be updated “once greater clarity emerged about the nature of EU withdrawal.” Acknowledging the huge impact of uncertainty, it ran an analysis showing that less uncertainty would lead to much stronger growth — 1.6 percent this year and 2.2 percent in 2020.


Source from: The Peninsula