Bank governor Mark Carney said that “profound uncertainties over the future of the global trading system and the form that Brexit will take are weighing on UK economic performance”.
Members of the nine-strong Monetary Policy Committee (MPC) voted unanimously to keep rates unchanged as it said that heightened no-deal Brexit fears had seen uncertainty become “more entrenched”
The Bank of England slashed its growth forecast to 1.3 per cent for both this year and next, down from the 1.5 per cent and 1.6 per cent respectively.
Yesterday Prime Minister Boris Johnson chaired his first meeting of the Cabinet no-deal exit strategy committee, and Chancellor Javid ordered HM Revenue and Customs to make no-deal planning its “absolute top priority” in the latest sign of the government’s efforts to prepare for potentially crashing out of the EU on 31 October.
The Chancellor has written to HMRC chief executive Sir Jon Thompson demanding action to support businesses and taxpayers and ensure staff and systems are in place to “deliver a functioning regime” on Brexit day.
It follows the announcement of more than £2 billion of additional funding to prepare for a no-deal Brexit.
Mr Javid confirmed on Wednesday that additional no-deal funding would include £1.1bn for departments and the devolved administrations to spend immediately, with a further £1bn in reserve.
Even with a Brexit deal in 90 days, the Bank of England said there was a 33 per cent chance that annual growth will be below zero in the first quarter of 2020.
It now expects UK gross domestic product to flatline in the second quarter, down from 0.5 per cent growth between January and March.
The Bank’s forecasts are based on a smooth Brexit deal, which is increasingly looking unlikely as new Prime Minister Boris Johnson takes a hardline stance in negotiations with the EU ahead of the October 31 deadline.
Mr Carney said the Bank will “take all appropriate measures” to support jobs and growth in the event of an even more damaging no-deal Brexit, but stressed there were “limits” to what it could do.
Mr Carney said there would be an “instantaneous shock” on the economy of a no deal and cautioned the pound would fall, inflation would rise and GDP would slow.
The pound has already tumbled by 6 per cent since May as no-deal fears mount and dipped below $1.21 against the US dollar yesterday, its lowest level since January 2017.
Liberal Democrat Treasury spokesman Chuka Umunna said the warning from the Bank of England confirmed that “any form of Brexit will weaken our economy”.
“It is perfectly clear that Brexit is already harming our economy: the manufacturing sector is nearing record lows and the pound is trapped in sharp decline,” Mr Umunna said.
“How can the Tory government claim they can end austerity and grow the economy when their policy of Brexit is pushing it to the brink?”
Meanwhile, a new poll suggests that almost three-quarters of Britons do not expect Boris Johnson to be able to agree a deal with the EU before October 31.
According to polling company Ipsos Mori, 74 per cent of Britons do not think the UK and the EU will be able to agree the terms of Britain’s exit by the deadline. Just a third of voters are confident that Mr Johnson will be able to “get a good deal” for Britain, with 64 per cent saying they are not confident.
Mr Johnson has enjoyed a poll bounce since entering Number 10, with a 25-point lead over Jeremy Corbyn when people were asked who would make the most capable Prime Minister.
The poll also gives the Tories a 10-point lead if a general election was held tomorrow, with the Conservatives up nine points on 34 per cent, Labour down three on 24 per cent, the Liberal Democrats up three on 20 per cent, and the Brexit Party down seven points, on 9 per cent .