The Bank of England warned of “greater uncertainty” over Brexit on Thursday as it kept interest rates on hold.
In the minutes of its latest meeting, the Bank’s Monetary Policy Committee said the signs had come “most prominently in financial markets of greater uncertainty about future developments in the withdrawal process”.
It also cited reports from the Bank’s regional network of agents that showed companies were “becoming more uncertain about the economic outlook and were considering their Brexit contingency plans more carefully”.
The government has been publishing contingency guidance for the possibility of a no-deal scenario next March, which would result in a huge shock to the economy as British firms face instant and crippling export and import barriers.
The boss of Jaguar Land Rover this week warned that tens of thousands of jobs in the motor industry are at risk if the UK crashes out of the EU.
The Bank of England said the exporters its agents surveyed saw a 40 per cent chance of Brexit hurting their sales, a 14 per cent chance of boosting them and 46 per cent of it making no difference.
But investment intentions have “softened” due to Brexit uncertainty.
Sterling has been under pressure in foreign exchange markets in recent months as fears have swelled of a no-deal scenario.
Despite the Brexit warning, the MPC kept its main policy rate on Thursday at 0.75 per cent, following the hike in August. The vote on the committee was unanimous. It also upgraded its third quarter GDP forecast from 0.4 per cent to 0.5 per cent, reflecting strong retail sales during the summer heatwave.
The Bank had previously estimated that UK GDP will already be about 2 per cent lower than otherwise by the end of this year thanks to the 2016 Brexit vote, a cost of around £900 to each household.
“We continue to doubt that the MPC will hike rates until the withdrawal agreement has been signed off by parliament early next year,” said Samuel Tombs of Pantheon. “May 2019 remains the most likely date for the next rate hike.”