Bank of England warns that ‘hard Brexit’ would damage UK growth
May 12, 2017

Mark Carney, the Governor of the Bank of England, has announced positive forecasts for the UK economy (an average of 1.8 per cent growth over the next three years), but emphasised that these projections were based on the UK securing a positive trade deal with the EU after leaving the bloc. Putting the projections into context, Mr. Carney said: “we have assumed that the process of leaving the European Union would be a smooth one, that means there will be an agreement about future trading arrangements and that there will be a transition from the negotiation period to that new agreement.” The Bank’s assumption was based on the formal positions of both the UK Government and EU, but Mr. Carney also expressed concerns about the Prime Minister’s comment that “no deal would be better than a bad deal”. The Bank said that its forecast also depended on a significant pick-up in wages; a low value Pound Sterling pushing inflation up no higher than 2.8 per cent; and economic demand remaining steady. Consumer spending is expected to fall as households suffer a squeeze on income, but a significant increase in business investment and net trade is expected to compensate. The Bank lowered its GDP forecast for this year from 2 per cent to 1.9 per cent due to a weaker first quarter than expected, but raised growth next year from 1.6 per cent to 1.7 per cent and in 2019 from 1.7 per cent to 1.8 per cent. Inflation will peak earlier than expected at 2.8 per cent this year, the same level as previously forecast for 2018. Against the backdrop of steady growth, the Bank’s monetary policy committee extended the emergency settings of the past eight years for another month, holding interest rates at 0.25 per cent and quantitative easing at £435 billion.

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