Juliette Healey: Brexit fog refusing to disperse

The fog of Brexit continues to hang over the country, and the uncertainties facing businesses and households remain high. That makes our regular conversations with local companies and communities more important than ever.
File photo dated 27/01/15 of a plastic model of a house on a pile of one pound coins Photo credit should read: Joe Giddens/PA WireFile photo dated 27/01/15 of a plastic model of a house on a pile of one pound coins Photo credit should read: Joe Giddens/PA Wire
File photo dated 27/01/15 of a plastic model of a house on a pile of one pound coins Photo credit should read: Joe Giddens/PA Wire

These conversations help the Bank’s policymakers navigate these uncertainties and set interest rates to keep price increases in line with our 2 per cent target. The government sets this target because low inflation supports jobs and steady growth in the economy.

While Brexit uncertainties have persisted at home, there has been some better news from abroad, with signs of a pick-up in global growth. That should support the UK economy.

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And growth has been supported recently by businesses building stocks of raw materials and finished goods in case of disruption from Brexit. That helped to push up economic growth earlier this year.

But the boost from stockbuilding is not expected to continue. That’s what firms in Yorkshire have been telling us. Investment by businesses is expected to remain weak while Brexit uncertainty persists and we expect growth in the economy will be fairly modest over the rest of 2019.

But with pay rising faster than prices and employment increasing, we believe consumers will continue to spend and provide some support to growth. In Yorkshire we’ve seen unemployment fall and across the UK it is at the lowest level since 1975!

Looking further ahead, as the uncertainty created by Brexit begins to fade, businesses will return to investing and consumer spending should continue to grow solidly.

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Against that stronger backdrop, the economy is forecast to grow more rapidly in 2020. We expect this will lead to larger price increases. As a result, the Bank will probably need to raise interest rates to meet our 2 per cent inflation target. But any rise in interest rates is expected to happen gradually. All that said, our forecast depends critically on the trade arrangements that are agreed between the UK and the EU, and how businesses, consumers and financial markets react to that.

Since last October, the Bank’s Agents have been asking business contacts about their reparations for Brexit. Our latest survey found that three quarters of firms had done some form of contingency planning.

Two thirds of contacts said they were ready for a ‘no deal, no transition’ Brexit. But of those firms, a third said they were only ‘as ready as we can be’, while ano- ther third thought they would not be affected.

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