A no-deal Brexit would deliver an “instantaneous shock” to the British economy and could tip the UK into a recession, the Bank of England governor Mark Carney has warned.
In a press conference on Thursday, he said the bank would “take all appropriate measures” to support jobs and growth. But he said there were “limits” to what it could do – and warned of the impact of a hard Brexit.
The bank warned on Thursday there was now a one-in-three chance of the economy shrinking at the start of 2020 as Brexit uncertainty takes its toll.
In its quarterly inflation report, the bank slashed its growth forecast to 1.3% for both this year and next, down from the 1.5% and 1.6% previously predicted.
The pound has already tumbled by 6% since the bank’s last inflation report in May, as no-deal fears gather pace as new Prime Minister Boris Johnson takes a hardline stance in negotiations with the EU ahead of the October 31 deadline.
Johnson has promised to take the UK out of the EU by the end of October "no ifs, no buts".
He hopes this will force Brussels to come back to the negotiating table to avoid no-deal.
But the EU has so far shown no sign it is willing to re-open the deal it agreed with Theresa May.
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.
The bank upped its UK growth outlook to 2.1% in 2021, though it admitted its forecasts were heavily skewed by financial markets now pencilling in a rate cut to 0.5% in the first half of 2020 as they see a 50/50 chance of a no-deal Brexit.