BoE Deputy Governor Ben Broadbent reiterated that Brexit is the major risk to growth in inflation outlook in a Treasury Select Committee hearing. He noted: “The outlook for both growth and inflation will depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the EU and the UK; whether the transition to them is abrupt or smooth; how households, businesses and financial markets respond; and the balance of these effects on demand, supply and the exchange rate.”
Broadbent also pointed out the May Inflation Report was conditioned to market path of Bank Rate rising only 25bps over the three-year forecast horizon. But “were the economy to develop in line with our projection, and taking as given other asset prices in the forecast, interest rates would probably have to rise by a little more than what was in the curve at the time of the forecast.”
Policymaker Michael Saunders warned “no-deal Brexit would probably have a significant adverse effect on the UK’s long term growth prospects, because of reduced openness to international trade in both goods and services, and the resultant deterioration in the attractiveness of the UK as a global business location.”
Saunders also noted “The major external risk is that the ongoing trade tensions could escalate further, with successive rounds of retaliation, hence undermining business confidence and growth on a wide scale. The UK, as a highly globalized economy, would suffer through various channels including effects on exports, investment and asset prices.”
