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Bank of England warns Brexit uncertainty has ‘intensified considerably’

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The Bank of England has warned of growing risks for the economy, saying Brexit uncertainty has “intensified considerably” as global growth takes a turn for the worse.

Its monetary policy committee (MPC) left interest rates unchanged at 0.75% – as expected – but used the statement on its meeting to outline a series of headwinds while downgrading its expectations for UK growth in the final quarter of the year.

It cut the forecast from 0.3% to 0.2% and said the figure was “likely to remain around that level in the first quarter of 2019”.

Chief among the bank’s Christmas list of worries was Brexit fog damaging demand.



Bank of England governor Mark Carney explains the institution's approach to a worst-case scenario Brexit




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Video:
Carney’s warning over worst-case Brexit

The statement read: “The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth.

“Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term.

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“The housing market has remained subdued. Indicators of household consumption have generally been more resilient, although retail spending may be slowing.”

The Bank repeated its previous guidance on how it would handle the UK’s expected departure from the EU in March.

It added: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”

That means the Bank could either raise or cut interest rates depending on the demands of its mandate to “achieve the 2% inflation target.”

Official figures this week showed the rate of inflation at 2.3% – with wage growth earlier found to be growing at a faster pace of 3.3%.

The bank said that inflation was likely to dip below 2% early next year as plunging oil costs – a consequence of over-supply fears in a slowing global economy – made their way through supply chains.

The Bank made its latest Brexit remarks soon after the government confirmed plans to re-start the parliamentary debate on Theresa May’s Brexit deal with Brussels on 9 January.

Its commentary on the process has faced steep criticism from Brexiteers who have accused governor Mark Carney of presiding over ‘Project Fear’.

He has insisted the Bank is merely doing its job.

A recent report the Bank was asked to prepare for MPs, containing various scenarios, suggested a disorderly Brexit could push the UK towards the biggest slump in modern memory.

Its latest survey of business conditions flagged problems for retailers, who were cautious about the outlook for Christmas sales after a disappointing Black Friday period in November.

Meanwhile, the lack of availability of EU workers had exacerbated recruitment difficulties – with companies addressing the problem by taking on more apprentices and graduates, training existing employees, and investing in technology, as well as being more selective about bidding for contracts.

The Brexit-hit pound – lifted on Thursday by stronger-than-expected retail sales figures – barely moved on the Bank’s latest commentary.

Mike Jakeman, senior economist at PwC, said of the meeting’s outcome: “The Bank noted the growing tightness of the labour market, which has pushed wage growth higher than the central bank had previously anticipated.

“There is also the possibility that lower global oil prices could also stoke domestic demand. However, these positive factors do not outweigh those indicating a slowing economy.

“Ultimately though, it will be Brexit that determines the Bank’s next move; a fact acknowledged by the committee, which said its monetary policy response could be in ‘either direction’.

“On the assumption of a reasonably smooth Brexit, we would expect the Bank to raise interest rates once in 2019, likely later in the year.”

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