Bank of England issues fresh warning about Brexit's impact on UK economy

‘The decision to leave the European Union is having a noticeable impact on the economic outlook,’ the Bank says

In September, Mr Carney said that households could see ‘short-term damage’ to their finances over the next few years, because of Brexit (EPA)

The Bank of England has issued a fresh set of warnings about the economic implications of Brexit, reiterating that the UK’s split from the European Union will probably hamper productivity and slow growth.

In its regular Inflation Report, published after announcing its first interest rate rise in over a decade, the central bank struck a cautious tone and said its future decisions would largely depend on the trade terms of the UK’s departure from the EU.

It also repeated its view that Brexit was already impacting on the UK’s performance.

“The decision to leave the European Union is having a noticeable impact on the economic outlook,” it said.

“Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly. And Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures,” it added.

The Bank said that the effect of Brexit-related uncertainties, including the subdued outlook for business investment, is likely to weigh further on productivity growth in coming years.

And it noted that business investment is projected to grow at a moderate pace, but by less than would have been suggested by global demand and financial conditions alone, “as uncertainty around Brexit weighs on companies’ plans”.

The Bank further highlighted the fact that future lower immigration from Europe – something that has already materialised in official figures – will hit the UK’s labour supply, presenting an additional headwind to UK growth.

There was also a warning that things could get worse.

“Intelligence from the Bank’s agents suggests that, were migration to fall abruptly, that could have more significant short-term consequences for supply – and hence for inflationary pressure – in some sectors that have become reliant on migrant labour,” the Inflation Report said.

The Bank of England and Governor Mark Carney have repeatedly issued warnings about the economic damage of Brexit.

Citing sources at the Bank earlier this week, the BBC reported that the central bank thinks estimates that up to 75,000 jobs could be lost within the financial services industry as a result of Brexit are “reasonable”.

The Bank has previously said that it now expects the level of business investment to be 20 per cent lower by 2020 than it was expecting before the EU referendum last year.

In the third quarter of 2017, the UK economy grew by 0.4 per cent, which was higher than the 0.3 per cent recorded in the second quarter, but below the 0.6 per cent growth seen across the eurozone.

The Bank now expects GDP growth over 2017 to be 1.6 per cent, down slightly from its last forecast of 1.7 per cent. It sees growth next year and the year after of 1.6 per cent and 1.7 per cent respectively, unchanged from its previous forecast.