BOE acknowledges rising no-deal Brexit concerns

Bloomberg

The Bank of England (BOE) acknowledged rising concerns over a no deal Brexit as it kept interest rates on hold and cut its near-term economic growth forecast to zero.
While officials, led by Governor Mark Carney, said they still see need for interest-rate hikes in coming years if their forecasts bear out, they also ackno-wledged that investors are tak- ing a different view than bank’s assumption of a smooth Brexit.
That’s left the BOE’s outlook at at odds with markets, where the possibility that the UK will leave the European Union without a deal has pushed the pound lower and prompted investors to start pricing in rate cuts. The Federal Reserve and others are moving towards more stimulus amid mounting global risks.
“Domestically, the perceived likelihood of no-deal Brexit has risen,” the bank said in a summary of monetary policy following its June meeting. The BOE said that downside risks to growth have increased since May, and underlying expansion has weakened slightly in the first half. It cut its prediction for this quarter to stagnation from 0.2 percent growth, a forecast in line with median estimate of economists in Bloomberg’s latest survey. The pound slid against the dollar after the minutes, while UK gilts rallied.
Despite weaker outlook, BOE is somewhat hemmed in by a forecast that assumes a form of “smooth” Brexit for the UK, a scenario that implies need for modest policy tightening. That assumption looks more fragile now, with all remaining candidates in race to succeed Prime Minister There-sa May refusing to exclude the prospect of leaving without a new arrangement in place.