The Bank of England released its quarterly Monetary Policy Report at the start of November. It contained lower growth forecasts for the UK economy than they had estimated the quarter before. Based on most of the UK press you would be forgiven for thinking that the growth reduction was due to the BoE not liking Boris’ proposed Brexit deal;
“Pound falls as Bank of England says Boris Johnson’s Brexit deal will hurt UK economy” The Independent
“The Bank of England has slashed its economic growth forecast for 2021 from 2.3 per cent to 1.8 per cent after it modelled the consequences of the global slowdown and Boris Johnson’s Brexit deal for the first time.” Daily Mail
“Bank of England cuts growth forecasts on Boris Johnson’s Brexit deal” Telegraph
However, this is just another example of poor journalism and sensationalist headlines clouding the facts over Brexit. Shame on you Independent, Telegraph and Daily Mail. Buy the way big kudos to The Guardian who’s article is by far the best and most accurately reflects what the BoE actually said.
What Did The BoE Actually Say?
Read the Monetary Policy Report – November 2019.
“Growth in the UK economy has been volatile this year in part because of Brexit preparations. Looking through those ups and downs, growth has slowed. We expect growth this year to be roughly half that in 2018. That is partly because growth in other countries has also slowed. Lower growth elsewhere has reduced the demand for the goods and services that the UK sells abroad.”
“Recently, the UK economy has slowed as firms’ uncertainties about Brexit have become entrenched and growth in the world economy has slowed. UK inflation has fallen back to just below our 2% target. This month we have kept interest rates unchanged.”
“Uncertainty about future outcomes is an important driver of economic behaviour, over and above central expectations. The Brexit process has already affected the UK economy. It has made some firms and households more pessimistic about the central outlook. It has also increased the uncertainty around that central outlook. Bank research suggests that these Brexit effects have depressed investment spending and weighed on productivity. The MPC’s latest projections assume that the progress of the Withdrawal Agreement removes some uncertainty. But some is likely to persist while the deal and the transition to it are negotiated.”
“With the risk of a no-deal Brexit falling recently, we expect the uncertainty facing households and businesses to fall. We also expect global growth to recover gradually. These developments should help growth here in the UK.”
All it really says about Brexit is that uncertainty over the process has reduced growth and now there is less uncertainty, due to the deal, this effect will reduce going forward.
Brexit Assumptions
This was the first time the BoE had actually had any specific Brexit deal criterion to work with. In previous reports, they had worked on a range of assumptions about what the Brexit deal would contain as well as what would happen if there was no deal and taken an average best guess position. With Boris’s specific Brexit deal they have been able to remove many of their assumptions. So let us be absolutely clear they were not comparing Mays deal to Boris’ and sating it is worse.
Why Is The BoEs Growth Forecast Lower?
The BoE highlight that international growth has slowed which impacts on the UK economy due to the fact we will be able to sell less to our international customers. The good news is they expect this fall to reduce going forward so our economy should recover with it.
Secondly, they highlight the cost to the economy of uncertainty and point out that the Brexit process has caused immense uncertainty for a long time. This has meant that investment in businesses has reduced as consumer spending and the result is a smaller economy. The good news is that as the Brexit strategy becomes clearer the uncertainly reduces and investment and spending go up along with economic growth.
Conclusion
No sensible economist thinks the UK will be better off economically after Brexit. We all know our economy and GDP will suffer. The people who want Brexit want it for non-economic reasons. To be clear, this report does not reflect badly on Boris’ specific deal. It doesn’t endorse it either of course.
