Growing Brexit uncertainty is cascading through the UK economy, delaying business decisions and hurting consumers, according to Bank of England governor Mark Carney (pictured).
He was speaking after the central bank cut its growth forecast and predicted a dramatic slump in investment. The “fog of Brexit” is creating tensions, Carney said, with uncertainty hitting the housing market and pushing down confidence.
The UK is now 50 days away from March 29 deadline to leave the European Union, and an agreement for its new relationship settled has yet to be settled. The economy isn’t ready for a no-deal, no-transition Brexit, Carney said, adding that such an outcome would increase the chance of a quarterly contraction in economic output.
The BoE now forecasts 1.2% growth this year, down from 1.7% predicted three months ago, the biggest downgrade since the 2016 referendum. The global backdrop has also weakened, as highlighted in the European Commission’s sweeping cuts to the euro-area economic outlook on Thursday.
The pound extended its decline after the report was published in London. It was down 0.2% to $1.2904 as of 12.58pm.
The BoE’s decision follows recent dovish statements from the US Federal Reserve and European Central Bank. UK officials noted the impact of China’s slowdown and said trade wasn’t contributing as much to growth as they expected.
The forecasts came alongside the latest policy decision by the Monetary Policy Committee. It voted 9-0 to hold the key interest rate at 0.75%, as predicted by all economists in a Bloomberg survey. The bank last lifted the rate in August.
With Brexit hanging over the outlook, the bank said that its forecasts would need to be updated “once greater clarity emerged about the nature of EU withdrawal.” Acknowledging the huge impact of uncertainty, it ran an analysis showing that less uncertainty would lead to much stronger growth - 1.6% this year and 2.2% in 2020. 
Assuming a smooth Brexit, policymakers reiterated that limited and gradual rate increases will be necessary. Nevertheless, the forecasts suggested that just one more quarter-point hike would be needed in the next three years to return inflation to close to the 2% target, down from almost three hikes seen in November.
Investors now see almost no chance of a quarter-point rate move by the end of the year.
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