LONDON
The Bank of England said on Thursday that British economic data had become “volatile” as the deadline for leaving the European Union approaches, and that economic growth probably flattened in recent months.
Still, the bank decided to keep its benchmark interest rate at 0.75 percent and the British pound, which had slid just before the announcement, ticked up slightly. In its statement, the central bank was clear that “intensifying Brexit-related uncertainties on business investment and weaker global growth” were hurting the British economy.
The likelihood of leaving the European Union on Oct. 31 without a plan — a no-deal Brexit — has caused distress in business circles. On Thursday morning, before the bank’s statement, the pound fell below $1.21, a level not seen in two and a half years.
The bank said the uncertainty over Brexit had made economic predictions difficult. “Increased uncertainty about the nature of E.U. withdrawal means that the economy could follow a wide range of paths over coming years,” the statement said.
The bank did not rule out an increase in interest rates “at a gradual pace and limited extent” if Brexit winds up being smooth and the global economy recovers.
Mark Carney, the governor of the Bank of England, and his rate-setting colleagues have based their predictions on a smooth Brexit. The British economy has been a relatively strong performer with employment robust and wage growth picking up. At the same time, there are growing causes for concern. Britain, for instance, is vulnerable to weakening global growth from the effects of the Trump administration’s trade wars and other factors.
The uncertainties around Brexit have increased since Boris Johnson became prime minister last week. Mr. Johnson is traveling the United Kingdom in discussions with political leaders and is making clear that a no-deal exit from the European Union is very much on the table.
In the short term, the plummeting currency is likely to fuel inflation because Britain imports more than it exports, and those imports will cost more.
A report on manufacturing released by IHS Markit on Thursday highlighted the economy’s vulnerability. Analysts at the research firm said that production and new orders shrank in July as “manufacturers faced the ongoing headwinds of political uncertainty, a global economic slowdown” and the use of inventories built up for the original Brexit date in March.
Source : Nytimes
