The impending Brexit is impacting British industry and pessimizing the country's central bank. British pound watchdogs lowered their economic forecasts for this and next year on Thursday at their interest rate meeting. For the years 2019 and 2020, they now only expect the gross domestic product (GDP) to increase by 1.3 percent.
In May, they had predicted 1.5 percent for this year and 1.6 percent for 2020. This would bring UK economic growth closer to that of the eurozone. It was the first monetary policy meeting since the appointment of Conservative Brexit advocate Boris Johnson as British Prime Minister.
The central bank warned that a tough Brexit would put a heavy strain on the pound and weaken the British economy. "Profound uncertainties" slowed the performance of the British economy, said Federal Reserve Chairman Mark Carney. The central bankers justified their adjusted outlook with the still unclear design of the Brexit as well as with the globally cooling economy. Both will continue to impact on the "short-term growth" of the economy, and more so than predicted in the May report.
Accordingly, the British industry is also facing increasing Brexit and the weaker global economy. Industrial production shrank in July at the highest rate in seven years, according to a company survey by the IHS Markit Institute published Thursday. As a result, the PMI of 48.0 points remained well below the 50 mark, which signals growth.
Without the EU, WHO rules apply
"In July, British industry stifled under the pressure of slower global economic growth, political uncertainty and the dissolution of earlier Brexit inventories," said Markit economist Rob Dobson. Customers delayed or canceled orders, which led to a further decline in new orders from home and abroad.
Before the Brexit referendum in 2016, the UK economy still had a significant dependency on the currency area in terms of growth. In its new forecasts, the Bank of England continues to assume that a Brexit shock can be avoided. It also assumes that inflation will be above the target of two percent in two and three years.
The new Prime Minister Boris Johnson has recently made it clear that he wants to leave the EU even without a contract at the end of October. In that case, Britain would give up access to the 500 million-inhabitant Internal Market and the Customs Union with the EU overnight. Then the rules of the World Trade Organization would apply, which would mean many import and export duties.