Bank of England cuts UK growth forecast and warns over no-deal Brexit

The Bank of England has cut its forecasts for UK growth over the next two years and also warned that a no-deal Brexit would hit the economy and trigger a further drop in the value of the pound.

The Bank left interest rates unchanged at 0.75% against a backdrop of weaker global growth and ongoing trade tensions between the US and China.

It said the UK economy was expected to grow by 1.3% this year, down from a previous projection of 1.5% in May.

The Bank also cut its outlook for growth in 2020 to 1.3%, from a previous projection of 1.6%.

The forecasts are based on the assumption that the UK leaves the EU with a Brexit deal – however it suggested growth could be much slower in the event of no deal.

Why has the Bank cut its forecasts?

The Bank’s Monetary Policy Committee (MPC) that sets interest rates said the UK was likely to have stagnated in the three months to June.

Its quarterly Inflation Report predicted only modest growth in the coming months due to ongoing uncertainty over the UK’s future relationship with the European Union.

It said there was a one-in-three chance that the economy will shrink at the start of next year, with global trade tensions also weighing on the UK outlook.

And it said there had been a “material and broad-based slowdown” in world growth since the end of 2017.

How is Brexit affecting business?

The Bank said UK economic growth was “likely to remain subdued over the coming year, with Brexit-related uncertainties weighing on spending to a greater extent than in May”.

Its latest survey of businesses showed that 90% of them had implemented contingency plans ahead of a previous March Brexit deadline.

Three quarters of respondents said they were also “as ready as they can be” for a no-deal scenario.

However, the Bank warned that “material risks of economic disruption remain”.

It noted that 240,000 businesses that currently trade solely with the EU were not ready for sudden EU border inspections in the event of no deal.

Many others did not have the right documents to keep selling to the EU if the UK left the bloc without a deal.

BMW pleads with Prime Minister to rule out no-deal Brexit

The chairman of BMW has warned Boris Johnson no-one would win from a no-deal Brexit and urged the new Prime Minister to listen to business.

Harald Krueger said leaving the EU without a deal would be “lose-lose” for the UK and industry.

Mr Krueger advised Mr Johnson: “Listen to the economy and listen to the people. He needs to be in a dialogue with business.

“I would visit Johnson to tell him this,” he added.

BMW warned earlier this year that if the UK leaves the EU without a deal it would threaten production of the Mini which is produced at its Cowley plant, near Oxford, where it employs 4,500 people.

BMW is one of a number of car companies that have expressed concern about leaving the EU without a trade deal.

This week, Vauxhall-owner PSA said it could move all production from its Ellesmere Port site, where it builds the Astra, if Brexit makes it unprofitable.

Such a move would put 1,000 jobs at risk.

BMW closed its Cowley plant for a month in April after planning for the original Brexit deadline of 29 March.

However, last month it committed to begin building its new electric Mini at the site in November.

In his previous role as foreign secretary, Mr Johnson last year allegedly used an expletive when discussing business concerns about a hard Brexit at an event for EU diplomats.

When pressed about using the word, Mr Johnson refused to deny the claim and said he may have “expressed scepticism about some of the views of those who profess to speak up for business”.

Mr Johnson has said the UK will leave the EU by 31 October, with or without a deal.

Recent figures reveal investment in the UK car industry has fallen sharply to £90m in the first six months of this year compared to £347m in the first half of 2018.

The Society for Motor Manufacturers and Traders said, however, that companies’ spending on contingency plans for a possible no-deal Brexit had now reached £330m.

Mr Krueger made his comments after BMW reported a 28% drop in pre-tax profits for the second quarter of the year.

The firm attributed this to investing heavily in electric car production and said it still expected to hit its financial targets for 2019.

CBI says that UK is not ready for a no-deal Brexit in October

The Confederation of British Industry (CBI) has warned the government that neither the UK nor the EU is ready for a no-deal Brexit on 31 October.

“While the UK’s preparations to date are welcome, the unprecedented nature of Brexit means some aspects cannot be mitigated,” said the CBI.

It has published practical steps it says the UK, EU and firms can take.

A government spokesman said the UK has increased the pace of planning for no-deal.

The CBI had previously said leaving the EU with a deal was essential to protect the economy and jobs.

New prime minister Boris Johnson has made Michael Gove responsible for planning a no-deal Brexit.

Mr Gove has said the UK government is currently “working on the assumption” of a no-deal Brexit.

He said his team still aimed to come to an agreement with Brussels but, writing in the Sunday Times, he added: “No deal is now a very real prospect.”

‘Hampered’

The CBI’s report What Comes Next? The Business Analysis Of No Deal Preparations advises what measures businesses can take to reduce the worst effects.

The advice is based on a study of existing plans laid out by the UK government, European Commission, member states and firms.

“And although businesses have already spent billions on contingency planning for no deal, they remain hampered by unclear advice, timelines, cost and complexity,” the CBI says.

“Larger companies, particularly those in regulated areas such as financial services, have well-thought-through contingency plans in place, though smaller firms are less well prepared.”

The report is based on thousands of interviews with firms of all sizes and sectors, including 50 trade associations, covering all areas of the UK economy.

The CBI says that in a no-deal Brexit some 24 of 27 areas of the UK economy would experience disruption.

The UK had been due to leave the EU on 29 March, but former Prime Minister Theresa May asked for an extension and the date was pushed back to 31 October.

A UK Government spokesperson said: “This is a constructive contribution from the CBI, acknowledging the importance of all businesses preparing for no deal on the 31 October.

“While we have done more to prepare than this report implies, since the new Prime Minister was appointed the Government has stepped up the pace of planning for no deal. The Chancellor has confirmed all necessary funding will be made available for vital no deal preparations. This includes funding for a major nationwide communications campaign to ensure that people and businesses are ready.

“Crucially, while there is more to do, the CBI observes that the UK is ahead of the EU in planning for no deal.”

Gove and Javid announce no-deal Brexit now ‘assumed’ by government

The government is now “working on the assumption” of a no-deal Brexit, Michael Gove has said.

Mr Gove said his team still aimed to come to an agreement with Brussels but, writing in the Sunday Times, he added: “No deal is now a very real prospect.”

The prime minister has made Mr Gove responsible for preparing for no-deal.

Treasury sources say they expect more than £1bn of extra funding to be made available later this week for no-deal planning and preparation.

Writing in the Sunday Telegraph, Chancellor Sajid Javid said there would be “significant extra funding” for 500 new Border Force officers and “possible” improved infrastructure at British ports.

Prime Minister Boris Johnson has told Mr Gove to chair no-deal meetings seven days a week until Brexit is delivered, according to the Sunday Times.

Mr Gove said tweaks to Theresa May’s withdrawal agreement – which was approved by the EU but resoundingly rejected by Parliament – would not be enough.

“You can’t just reheat the dish that’s been sent back and expect that will make it more palatable,” he wrote.

He added he hoped EU leaders might yet open up to the idea of striking a new deal, “but we must operate on the assumption that they will not”.

“While we are optimistic about the future, we are realistic about the need to plan for every eventuality.”

Mr Gove highlighted a major flaw of Mrs May’s deal as the Irish backstop plan – a measure designed to prevent the introduction of a hard border on the island of Ireland.

So far the backstop has proved a sticking point in the Brexit negotiations.

A no-deal Brexit would mean the UK leaving the EU and cutting ties immediately, with no agreement in place.

The UK would follow World Trade Organization rules if it wanted to trade with the EU and other countries, while also trying to negotiate free-trade deals.

But with Britain outside the EU, there could be physical checkpoints to monitor people and goods crossing in and out of the UK.

No-confidence vote

Speaking to Sky’s Sophy Ridge, Labour leader Jeremy Corbyn said he would do everything to prevent a no-deal Brexit.

He reiterated his call for a new referendum – insisting he would still hold one if Labour were in power – and said, in the event of a no-deal Brexit, Labour would campaign to remain in the EU.

Mr Corbyn also said he would look at whether to call a no-confidence vote in the government after Parliament returns in September.

Liberal Democrat leader Jo Swinson told Sky that, in the event of a general election, her party’s message would be: “Stop Brexit, stop Boris and start renewing our country.”

Mr Gove is one of several new ministers pressing on with Brexit preparations since joining Mr Johnson’s cabinet earlier this week.

Newly appointed Chief Secretary to the Treasury, Rishi Sunak, told Sky: “We’re turbo-charging preparations for no-deal, that is now the government’s number one priority.”

He said if the EU would not reopen discussions about the Irish backstop plan then “it’s right that we prepare properly, with conviction, and importantly with the financial resources that the Treasury will now supply properly”.