London Daily

Focus on the big picture.
Monday, Jul 06, 2026

Bank warns Brexit deal would hit economic growth

Bank warns Brexit deal would hit economic growth

The Bank of England has warned that weak global growth and trade barriers created by the government's Brexit deal will hit the UK economy.

It came as two Bank policymakers called for an immediate interest rate cut to support growth.

The Bank voted 7-2 to keep interest rates on hold at 0.75%.

The Bank said the new EU withdrawal agreement struck by Prime Minister Boris Johnson had reduced the likelihood of a no-deal Brexit.

The Monetary Policy Committee (MPC) that sets interest rates said this would end some of the uncertainty facing businesses and households.

However, policymakers added that the transition to a new trade deal would introduce new customs checks and regulatory barriers.

The MPC said its assumption of a Canada-style "deep free-trade agreement" between the UK and EU would "raise administrative costs for firms" doing business with the continent.


What's the outlook for growth?

Mark Carney, the governor of the Bank of England, said the Brexit deal had created "the prospects for a pick-up in UK growth".

The Bank expects the annual pace of growth to rise from around 1% at the end of this year to more than 2% by the end of 2022.

Mr Carney said this would be helped by "a world that has stopped weakening and picks up a little bit".

He added: "three-quarters of that rise in growth is driven by domestic factors - the most important of which is a reduction in uncertainty driven by an orderly transition to a new Brexit arrangement."

However, the Bank's Monetary Policy Report said a weaker global economy and its new assumptions about Brexit would knock 1% off UK growth over the next three years compared with its forecast in August.

Policymakers believe the UK economy grew 0.4% in the three months to September this year, double their estimate in August, amid a recovery in the UK's dominant services sector.

However, growth in the final quarter of the year is expected to fall back to 0.2%.

Spending pledges by the government are expected to boost growth in the coming years.

The Bank also cited research that showed the current level of business investment is about 11% lower because of Brexit uncertainty.


What else did the Bank say about Brexit?

For the first time, Bank policymakers changed their assumption about the UK's future trading relationship with the EU.

They had previously assumed an average of a range of Brexit outcomes that filter through to the economy over 15 years.

It now assumes the government will strike a free-trade agreement with Brussels that will keep goods tariffs at zero but introduce customs checks at the border.

With the transition period currently due to expire at the end of 2020, the drag on growth from new regulatory barriers will now be more immediate.

Policymakers said: "As a result, trade flows are likely to fall and some companies might exit the market."

Diverging regulations are also expected to hit a wide variety of sectors across the EU, from law to banking.

The Bank also suggested that trade deals with new partners would be years away, reflecting the fact that "it typically takes several years for new trade deals to be negotiated and implemented".


What's the outlook for interest rates?

Michael Saunders and Jonathan Haskel, two of the Bank's external rate-setters, voted to cut interest rates to 0.5%, from the current rate of 0.75%.

They said inflation, which currently stands at 1.7%, suggested that there was little risk that the economy would overheat in the medium term if interest rates were cut.

The MPC expects inflation, as measured by the consumer prices index (CPI), to fall to about 1.2% by next spring as the impact of the government's energy price cap kicks in.

This is well below the Bank's 2% target.

While the unemployment rate remains below 4%, which is its lowest since the 1970s, Mr Saunders and Mr Haskel said they believed recent data suggested the "labour market was turning".

They also said there was a risk that world growth could be weaker and Brexit uncertainties could persist for longer than the MPC's assumptions.

Financial markets believe interest rates will be cut to 0.5% in the coming year, and Mr Carney said the MPC would respond to developments in the economy accordingly.

Lower interest rates are good news for borrowers and bad news for savers, as commercial banks use the Bank of England as a reference point for the rates they offer on mortgages and savings accounts.


Will Mark Carney delay his departure from the Bank?

Bank governor Mark Carney is due to stand down from his role on 31 January next year. However, at the Bank's news conference, he opened the door to staying on beyond that date.

He said that he had already agreed to extend his term twice, in order to ensure the financial system was prepared for Brexit and also to ensure a proper handover to his successor.

Mr Carney said it was understandable that a decision on the new governor had not been made, "given the priority" that the Brexit negotiations have taken.

He committed to making sure that the transition to the new governor was "smooth".

Newsletter

Related Articles

0:00
0:00
Close
NHS Maternity Reform Expands Central Oversight After Critical National Review
Dover Border Warnings Highlight Post-Brexit Pressure on Cross-Channel Trade
Private Nuclear Consortium Advances £35 Billion Small Reactor Strategy in UK
UK Labour Leadership Signals Shift Toward Reindustrialisation and Regional Power
House of Lords Debates Rail Nationalisation Bill to Create Great British Railways
Scottish Affairs Committee Expands Inquiry Into SNP Financial Conduct
Evri Launches £1.2 Million Defamation Case Against BBC Over Panorama Investigation
Port of Dover Warns of Border Delays as EU Entry-Exit System Looms
Nigel Farage Referred to Standards Watchdog Over Alleged Undeclared Benefits
UK Government Faces Scrutiny Over Claimed AI Datacentre Investment After FOI Findings
UK and India Finalise Trade Agreement Rules Ahead of Mid-July Implementation
UK Government Establishes National Maternity Commissioner After Major Review of NHS Care Failures
Private Consortium Plans £35 Billion UK Nuclear Programme Targeting Small Modular Reactor Rollout
Andy Burnham Sets Out Ten-Year Reindustrialisation and Devolution Plan as Leadership Transition to UK Premiership Advances
Morocco and France Advance as 2026 FIFA World Cup Enters Quarterfinals.
Historic 2026 Tour de France Opens in Barcelona With Revamped Team Time Trial.
Global Mergers and Acquisitions Approach $4 Trillion Defying Geopolitical Tumult.
Negotiators Advance 20-Point Framework for Gaza Ceasefire and Demilitarization.
OECD Warns Middle East Conflict Will Depress Global Economic Growth.
Ukrainian Drones Strike Major Oil Terminal in St. Petersburg.
World Meteorological Organization Issues Urgent Alert Over Rapidly Intensifying El Niño.
United States Commemorates 250th Anniversary With Diplomatic Summits and Global Flotilla.
Iran Begins Days-Long Funeral for Supreme Leader Khamenei Amid Strait of Hormuz Standoff.
Technology giant reports surging carbon emissions driven by artificial intelligence infrastructure demands.
Artificial intelligence adoption accelerates workforce reductions across the technology and financial sectors.
Global technology and financial conglomerates collaborate to launch a new stablecoin standard.
United States regulators lift export restrictions on a major frontier artificial intelligence model.
Royal Society Exhibition Highlights Growing Focus on Public Trust in Science
Energy Costs and Supply Chain Risks Continue to Shape UK Business Strategy
Rapid Rise in Artificial Intelligence Adoption Reshapes UK Corporate Operations, ONS Says
UK Businesses Turn Defensive as Economic Outlook Weakens, Institute of Directors Data Shows
UK Government Faces Criticism Over Late Extension of Pub Hours for England Match
Inquest Continues Into Death of Noah Donohoe as Jury Deliberates Findings
Calls for Stronger Wildlife Attraction Safety Rules After Crocodile Enclosure Injury
City Fire Under Control After Major Blaze Sends Smoke Across Urban Area
Police Investigation Continues After Officer Killed During Road Closure Duties
Blackpool Hotel Fined £120,000 After Electric Shock Incident Involving Child
Whistleblowers Allege Delays in UK Special Educational Needs Support Services
Calls Grow for Improved Support for UK Armed Forces Personnel Facing Health Conditions
Rising UK Energy Price Cap Increase Prompts Wider Concerns Over Household Pressures
UK Businesses Remain Concerned Over Global Conflict Risks to Supply Chains, ONS Finds
Office for National Statistics Reports Rising Adoption of Artificial Intelligence Across UK Businesses
Institute of Directors Reports Deepening Pessimism in UK Business Confidence Index
England Prepare for World Cup Round of 16 Match Against Mexico in Mexico City
Royal Society Summer Science Exhibition Concludes in London After Week-Long Showcase of Research
Silverstone Hosts British Grand Prix as Lando Norris and Lewis Hamilton Lead Home Crowd Expectations
Cornwall Van Dwellers Face Homelessness Risk as Council Tightens Enforcement
Police Investigate Stabbing of Iranian Journalist in London
Rare Copy of US Declaration of Independence Discovered in UK Archive
Department for Education Data Shows Persistent Literacy Gap Among Disadvantaged White Pupils
×