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Bank of England warns of economic hit if Brexit talks fail

As Brexit day draws near, a detailed analysis by the Bank of England warns that the pound would likely fall further in case of a "disruptive'' withdrawal from the EU, which would "tend to increase inflation''


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LONDON – The Bank of England warned Thursday that Britain could suffer an economic shock if it crashes out of the European Union without a deal, saying it could cause another big fall in the value of the pound, potential gridlock at ports and even interest rate increases.

After keeping its main interest rate on hold at 0.75 per cent, as expected, the central bank said Britain’s economic output could “fall sharply” if the country fails to reach a deal with the EU on future relations after Brexit day in March.

“An abrupt and disorderly withdrawal could result in delays at borders, disruptions to supply chains, and more rapid and costly shifts in patterns of production, severely impairing the productive capacities of U.K. businesses,” the bank said in economic projections that accompanied the unanimous rate decision by the nine-member Monetary Policy Committee.

In perhaps its most detailed analysis yet of the potential consequences of a no-deal Brexit, the bank also warned that the pound would likely to fall further in case of a “disruptive” withdrawal from the EU, which would “tend to increase inflation.”

Since Britain voted to leave the EU in June 2016, the central bank has been operating on the assumption that Britain would achieve an orderly transition to a new trading relationship with the EU.

The bank’s assumption is that Britain will not ultimately have the same close access to EU markets as it does now. But it also does not assume that tariffs would be imposed on a wide array of exports. It’s predicting something in between.

After 18 months of discussions, a Brexit deal has yet to be reached and fears are growing that one may not be clinched given divergent views in particular on how to ensure a hard border does not return between EU member Ireland and Northern Ireland, which is part of the United Kingdom.

A summit of EU leaders in October was supposed to be the moment by which to reach a Brexit deal, to give parliaments time to pass it into law ahead of the March departure. Now, officials are talking about a summit in December as potentially the last chance for a deal. By then, many Britain-based firms may have already activated contingency plans that could include transferring business to the continent and job cuts.

 


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