Bank of England (BOE) lowered the UK's economic growth expectations on Thursday. The reason for the reduction is, among other things, the uncertainty surrounding the British exit from the European Union, the Brexit. However, the bank left the main interest rate unchanged.
BOE expects an economic growth of 1.3 percent in 2019. In May the central bank assumed a growth of 1.5 percent. For next year, the British central bank is also aiming for economic growth of 1.3 percent. Previously this was 1.6 percent.
For the current quarter, the central bank expects economic stagnation, in May the central bank still expected 0.2 percent growth. BOE expects a growth of 0.3 percent for the third quarter. The expected economic growth in the second and third quarter would together be the weakest growth since 2009.
The Brexit, scheduled for late October, could cause a recession next year, the central bank warns. According to BOE, this applies to both a Brexit without agreement and one with an agreement.
Bank of England estimates Brexit with a deal
With regard to the growth forecast, BOE did assume a Brexit with agreements with the EU, instead of a so-called 'no deal Brexit'. The chance of such a scenario seems to have increased in recent weeks, led by the new British Prime Minister Boris Johnson, the British government has taken a harder line in which a 'no deal' scenario is shunned less than under Theresa May.
When the UK 'crashes' out of the EU without a deal, the central bank expects that the pound will fall in value considerably, that inflation will rise and that the expected economic growth will be even lower.