The slow-burn impact of Brexit on the British economy will be a drag on growth for the rest of the year, stopping the Bank of England from raising interest rates, economics forecaster EY Item Club has cautioned. Ahead of a major policy decision from the bank on May 2, the forecaster said uncertainty over the country’s future would cut its growth rate.
The Bank of England will publish the decision of its monetary policy committee (MPC) on May 2 and release its quarterly inflation report.The slow-burn impact of Brexit on the British economy will be a drag on growth for the rest of the year, stopping the Bank of England from raising interest rates, economics forecaster EY Item Club has cautioned. Ahead of a major policy decision from the bank on May 2, the forecaster said uncertainty over the country's future would cut its growth rate.#
Bank governor Mark Carney will also deliver the MPC’s latest verdict on the strength of the UK economy.
Despite a robust start to the year, gross domestic product (GDP) growth had been artificially high due to an unprecedented upswing in stockpiling by firms bracing for a disruptive no-deal Brexit, the EY Item Club posted on its website.
The forecasting group downgraded its growth projections for the United Kingdom to 1.3 per cent for 2019 and 1.5 per cent for 2020, cautioning that the stronger-than-anticipated performance at the beginning of this year was likely a ‘false dawn” for the country. The economy grew by 1.4 per cent in 2018.
Companies could choose to run down their stockpiles of raw materials, components and finished goods as the cliff-edge risks over no-deal Brexit dissipate, meaning economic growth could be weaker in future, it said.
The report said the bank would probably leave interest rates at 0.75 per cent, where the base rate has been set since August last year, throughout this year. However, it added that a 25 basis point hike over the summer to 1 per cent could not be ruled out, if the economy continued to show resilience and the labour market strengthened further. (DS)
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