Two former members of the rate-setting committee of Bank of England on the economic prospects of Britain
There is confusion in the run-up to Brexit about what trade deals will be signed by the UK
A new government, and a new governor of the Bank of England. For the UK economy this should be a fresh start. But Brexit’s dark shadow continues to surpass our economic performance and outlook.
The Bank expects to rise by 0.1 percent in the final quarter of this year in its latest assessment. That would mean that since the first quarter of the year the UK economy has not grown at all. The year 2019 is expected to be the worst year since the financial crisis.
It’s not because of Brexit alone. The global economy has slowed and this global slowdown has affected our major trading partners in Europe – especially Germany.
But the confusion generated by Brexit has not gone away, even though with the election of a majority Conservative government, the broader political instability has been reduced.
The Brexit withdrawal agreement will now pass through parliament, but what happens at the end of 2020 when the transition period comes to an end is the new ingredient that contributes to Brexit uncertainty.
A full trade agreement with the EU is unlikely to be developed by then, so that the UK economy will face another cliff edge with the possibility of a no-deal scenario.
Early next year, with spending increases and tax cuts, we are expected to see an expansionary budget. That will help offset some of the UK economy’s current negative influences, but not entirely. The best we can hope for is economic growth of 1-1.5 percent in 2020.
The current governor of the Bank, Andrew Bailey, is expected to preside over a decade of very subdued economic growth in the 2020s. It represents mainly underlying structural factors, including Brexit–but also slow underlying productivity growth and the fact that the labor market is left with little slackness.
The correct monetary policy response in these circumstances should be to gradually raise interest rates. It will be interesting to see if the MPC’s new chairman, who has not served on the committee, is trying to steer a course other than the Mark Carney regime’s drift and indecision.


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