Brexit uncertainties have “intensified considerably” since early November, the Bank of England said Thursday, as a leading automotive industry group warned of the possible loss of hundreds of thousands of jobs if the country crashes out of the European Union without a deal.
While keeping the bank’s main interest rate unchanged at 0.75%, as expected, the nine-member rate-setting panel noted a series of negative economic developments amid the Brexit impasse that are weighing on business investment and on growth.
Britain is due to leave the EU on March 29 but Prime Minister Theresa May has delayed a parliamentary vote on her Brexit deal with the EU until mid-January.
At the moment, it looks like her deal, which foresees relatively close ties between Britain and the EU in the trade of goods, will struggle to get through parliament.
What would happen then is unclear. Some lawmakers back another Brexit referendum while others think the country would be just fine crashing out of the EU after some initial turbulence. Given the uncertain outcome in Parliament, both the EU and Britain have ramped up preparations for a “no-deal” eventuality. The British government, for example, is already stockpiling pharmaceuticals.
Britain’s main car industry lobby group slammed the idea of the country leaving the EU without a deal, a scenario that would basically reverse four decades of economic alignment, with tariffs placed on exports, border checks reinstalled and restrictions on travellers and workers.
The Society of Motor Manufacturers and Traders urged the government to take “off the table” the prospect of a “no-deal” Brexit “or risk destroying the automotive industry and the hundreds of thousands of jobs it support.”
Given the “just-in-time” nature of the automotive industry, SMMT chief executive Mike Hawes said the impact of a “no-deal” Brexit outcome “will be felt, not in months or days, but hours.”
“We would face immediate delivery shortages, additional costs and uncertainty, which will seriously damage our sector,” he said.
Minutes to the Wednesday meeting of the Bank of England’s main policymaking body showed rate-setters think the economic consequences are piling up. They noted a wide array of economic impacts, including a further fall in the value of the pound, weak business investment and a cooling housing market.
“The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for U.K. growth,” they said.
Bank staff said the U.K. economy may only grow 0.2% in the fourth quarter from the previous three-month period, 0.1 percentage points lower than thought last month.
“The broader economic outlook will continue to depend significantly on the nature of EU withdrawal, in particular: the form of new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond.”
Last month, the Bank of England said that in a worst-case scenario, the British economy could shrink by a massive 8% within months of the March 29 Brexit date and unemployment and inflation would spike.
While businesses are voicing their concerns, households appear more sanguine—for now. Spending has been buoyed by decade-high increases in earnings and lower inflation. Figures Thursday showed retail sales in November up a monthly 1.4%.
The Bank of England said lower oil prices could see the annual rate of consumer price inflation, which was 2.3% in November, fall below its target of 2% in January, to around 1.75%.
Brexit, though, looms large and analysts are skeptical about the consumer outlook if the uncertainty persists. A raft of retailing business failures and profit warnings this year clearly suggest all is not well.
“The retail sector is facing a tough Christmas period as consumers grow more cautious,” said James Smith, developed markets economist at ING.
“This negative sentiment could grow if individuals become more nervous about job security as the perceived risk of ‘no-deal’ rises.”