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.