The Bank of England has downgraded its growth forecast for the British economy as uncertainty over Brexit intensifies.
The Bank now expects the economy to grow by 1.2% in 2019 which would be its weakest performance since the recession in 2009.
The Bank judges that our prospects have been dented by events abroad.
Our fortunes are tied to those of our trading partners and in the United States, China and in the Eurozone growth is weakening.
But the Bank believes there’s also evidence that activity is being damaged by the persistent lack of clarity surrounding our future relationship with the EU.
- Joel Hills explains that while Mark Carney believes a Brexit deal will be done, the Governor of the Bank of England has warned that a disorderly no-deal could lead to a recession
Business investment continues to fall.
In the Bank’s latest survey of 200 companies, half said they were implementing contingency plans for a “no deal, no transition” Brexit, an outcome around half said they weren’t ready for.
And the jitters may be spreading.
The housing market is flat-lining, the Bank detects "some signs" that the uncertainty "might also be affecting households’ spending and saving decisions".
If true, this is new and interesting. Until now the British public has been extremely relaxed about the prospect of disorderly departure.
Britain sits in the departure lounge, bound for who knows where.
In the circumstances it’s little wonder that the Bank’s Monetary Policy Committee voted unanimously to keep interest rates on hold.
Bank Rate remains at 0.75%. In November, the Bank’s projections assumed two interest rate rises over the next two years. Now only one is pencilled in by 2022.
There are reasons to be cheerful: inflation is forecast to head back towards target, driven by a fall in petrol prices and Ofgem’s cap on energy bills; employment is at a record high; real pay growth is expected to rise further in the months to come.
Anything could happen next, as the Bank acknowledges.
It’s forecasts are built on the (currently brave) assumption that there is a "smooth adjustment to the average of a range of possible outcomes for the UK’s eventual trading relationship with the European Union".
When the Bank updates its forecasts in May that assumption will no longer hold. We should have a much better idea of what Brexit means.
Households, businesses and the financial markets will react accordingly, for better or for worse.
If investment recovers, confidence grows and the pound settles, our growth prospects could markedly improve. In the event of No Deal the outlook will darken.
Three months ago the Bank published analysis which showed that an abrupt, disorderly departure from the EU could tip the British economy into a severe recession.
Since then opinion polls have consistently reported that around 30% of the population wants Britain to leave the EU in March without a deal.
Of course, opinion polls are unreliable but it’s interesting that they suggest there is a large constituency of people who either don’t believe what the Bank of England is telling them about the risks surrounding No Deal or feel a downturn would be a price worth paying for leaving without delay.