BREXIT COUNTDOWN: Next two months CRITICAL for UK economy, warns Bank of England deputy

Posted on Nov 14 2018 - 3:01am by admin

And the longer the situation has dragged on, the bigger the “drag” on business investment has been as a result of Brexit uncertainty, he added.

Mr Broadbent, who is Governor Mark Carney’s number two, made his remarks during an interview with CNBC’s Joumanna Bercetche, in which he said he believed a withdrawal agreement and subsequent transition period remained the most likely result of crunch Brexit negotiations.

But he said: “The sequence of events over the next two to three months could change the outlook materially.

Pressed about a Reuters poll of economists published on Friday which showed a 1-in-4 chance of a no-deal Brexit, Broadbent stuck with the BoE’s base case that there would be a “smooth” Brexit.

He said: “Our forecasts are conditioned on an assumption that there will be a deal, and in particular a transition period agreed…

“I still think it’s the most likely outcome.

“But obviously, over time, every day there are headlines, positive, negative, which will send the currency in particular in one direction or the other.”

Mr Broadbent said he saw signs of slower economic growth in the fourth quarter, adding that the effect of Brexit uncertainty on business investment had intensified this year.

The Bank of England is predicting the UK economy is set to grow by 1.7 percent next year, with inflation likely to hit 2.1 percent during the same period.

These forecasts are based on the assumption of a deal with the EU which maintains relatively close trade links.

Mr Broadbent said economic growth had been “relatively weak” over the course of the last two years.

However, he added: “That said and even though GDP (gross domestic product) growth has been weaker than certainly pre-crisis rates, it’s been strong enough to allow the unemployment rate to fall further to reach 40-year lows and that in turn has been strong enough to push our wage growth which is momentarily higher since any time since the crisis.

“The additional thing we have seen this year is an intensification of the drag on business investment from uncertainty about Brexit, investment has been relatively weak since the referendum, certainly compared to comparable economies.

“But that effect, I think, has intensified through the course of 2018.”

Doubts about Prime Minister Theresa May’s ability to get a Brexit divorce deal backed by both the European Union and her own lawmakers have grown over the last few days, sending the pound sliding against the dollar on Monday.

Meanwhile it was widely reported today that ministers in Mrs May’s cabinet voiced grave doubts about the viability of her Chequers proposals during the course of the lengthy meeting at the Prime Minister’s country retreat in July, after which the much criticised Brexit blueprint which was thrashed out there was nicknamed.

Speaking last month, Megan Greene, Managing Director of Manulife Asset Management, said she believed a hard Brexit, whereby Britain leaves the single market, and the Customs Union, while at the same time negotiating some form of free trade deal with the EU, was the “most likely scenario”.

However, she added: “The chances of a no deal have gone up significantly since the UK put out its Chequers plan, where it tried to have its cake and eat it too.

“There will need to be a border between Ireland and Northern Ireland, or there will need to be a border between Northern Ireland and Great Britain or the UK will need to stay in the customs union and single market. Those are the only options and none of those are acceptable to all the parties.”

Bookmakers Coral and Ladbrokes are currently offering odds of 4/5 on no Brexit deal being agreed before April 1, 2019, meaning a £10 bet would net punters an £18 return, ie their original stake plus £8.

Leave A Response