Saturday 24 August 2019

UK faces 'instantaneous shock' and 'one-in-three' chance of recession

Bank of England governor Mark Carney (PA)
Bank of England governor Mark Carney (PA)

Holly Williams

The Bank of England warned there was now a one-in-three chance of a UK recession at the start of next year as Brexit uncertainty takes its toll.

It comes just days after the Central Bank of Ireland warned a no-deal Brexit would push the State to the brink of recession and cost tens of thousands of jobs.

Yesterday members of the nine-strong UK Monetary Policy Committee (MPC) voted unanimously to keep interest rates unchanged at 0.75pc.

It said heightened no-deal Brexit fears had seen uncertainty among firms become "more entrenched", which is hitting the wider economy.

In its quarterly inflation report accompanying the decision, the bank slashed its growth forecast to 1.3pc for both this year and next, down from the 1.5pc and the 1.6pc previously predicted.

In a warning shot, it also predicted a 33pc chance that annual growth will be below zero in the first quarter of 2020 even without a cliff-edge EU withdrawal.

Bank governor Mark Carney said: "Profound uncertainties over the future of the global trading system and the form that Brexit will take are weighing on UK economic performance."

He said the bank will "take all appropriate measures" to support jobs and growth in the event of a no-deal Brexit, but stressed there were "limits" to what it could do.

Mr Carney said there would be an "instantaneous shock" on the economy in a no deal and cautioned the pound would fall, inflation would rise and GDP would slow.

He repeated that rates could go in either direction in a no-deal scenario and indicated the government could not bank on a big rates cut.

The Bank of England would need to balance the need to cool inflation caused by the plunging pound, while also providing support for a flagging economy, he added.

The pound has already tumbled 6pc since the bank's last inflation report in May as no-deal fears mount.

UK growth is also being hit hard as businesses hold back on investment due to Brexit uncertainty, which is coming at a time of slowing global economic conditions amid trade tensions between the US and China.

A hard Brexit will bring economic growth here crashing down from the fastest in the eurozone to the slowest.

The Central Bank of Ireland this week warned how a crash-out scenario would hammer the domestic economy across the board.

Economic growth of just 0.7pc would be the worst recorded since 2012 and the hit from Brexit would destroy 34,000 jobs.

There would be at least 100,000 fewer jobs over the medium term.

Irish Independent

Editor's Choice

Also in Irish News