The Bank of England (BOE) has argued that Britain’s economy is underperforming in part due to Brexit uncertainty and will continue to do so if an October deal is not reached, Reuters reports.
The BOE stated:
Political events could lead to a further period of entrenched uncertainty. The longer those uncertainties persisted, particularly in an environment of weaker global growth, the more likely it was that demand growth would remain below potential, increasing excess supply.
The bank’s Monetary Policy Committee voted unanimously to maintain rates at 0.75% and emphasised the potential damage to the British economy from a no-deal exit from the European Union.
Prime Minister Boris Johnson has promised repeatedly to take the UK out of the EU by October 31st, saying he would rather be “dead in a ditch” than seek a further extension.
The BOE’s statement increases speculation of a further rate cut if the global economy stalls even further and Brexit remains unresolved. British government bond yields and sterling (GBP) dropped slightly following the statement.
Arch-opponent of Brexit and Governor of the BoE Mark Carney observed from a personal perspective that the BoE is more likely to need to cut rates after a no-deal Brexit.
The UK economy unexpectedly shrank in the three months to June by 0.2% but is now expected to bounce back by the same amount in the three months to September. The rate of inflation is growing at its lowest rate for almost a decade and is currently below wage growth at 1.7%.