ADVERTISEMENT

BOE Warns of Downside Risks From No-Deal Brexit and Global Trade

BOE Warns of Downside Risks From No-Deal Brexit and Global Trade

(Bloomberg) --

Bank of England policy makers reiterated the downside risks to the U.K. economy from Brexit and global trade tensions, even as they emphasized that interest rates could still rise.

Departing the European Union without a deal would hamper the U.K.’s long-term growth prospects, Michael Saunders told lawmakers on Parliament’s Treasury Committee on Tuesday. The nation would suffer from reduced openness to international trade and less appeal as a global business location.

BOE Warns of Downside Risks From No-Deal Brexit and Global Trade

An escalation in trade turmoil would also damage British exports, investment and asset prices, he said. Those comments were echoed by Deputy Governor Ben Broadbent, who in his own responses to the group said “a disorderly Brexit remains the most significant risk” to financial stability.

The threats to growth from both domestic and external factors are making it hard for the central bank to sell its message that interest rates could rise faster than investors expect. It argues that weak productivity and a strong labor market could fuel unsustainable cost pressures that will require action by policy makers.

The BOE has said it stands ready to raise rates by more than investors are predicting if the U.K. successfully manages a smooth exit from the EU, and Saunders used a speech in Southampton on Monday to say there’s no need to wait until all political uncertainty around is resolved. Labor-market data on Tuesday showed underlying wage growth accelerating, increasing inflationary pressure.

However, investors are currently pricing in a greater chance of a cut than a hike through November 2020.

Another policy maker, Gertjan Vlieghe, told an audience at a separate event in London that since the BOE last published economic forecasts in May, the data have been “a little disappointing.” Figures on Monday showed a larger-than-expected slowdown in growth in April, and the National Institute of Economic and Social Research predicts the economy is likely to contract 0.2% in the second quarter

“In terms of both the global downside risks and the domestic downside risks, my read is that they have both intensified,” Vlieghe said. “I think that I will leave it there. It has got a little worse.”

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net;Jill Ward in London at jward98@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net

©2019 Bloomberg L.P.