LONDON — Britains economy is doing better than expected despite the specter of Brexit, the Bank of England said today.
Announcing its decision to hold interest rates, the bank said Brexit uncertainty was preventing some firms from investing but this was offset by households who were still spending enough to lift GDP.
While the bank still predicts the U.K. will exit the European Union smoothly, it also warned in its quarterly inflation report that the economy would be damaged if the U.K. left without a deal. The bank expects GDP growth of around 1.75 percent per year on average until 2021 but stressed that its forecast assumes a smooth transition to an average of a range of possible outcomes on the final Brexit deal as the U.K. leaves the European Union.
The rosier economic picture helps Prime Minister Theresa May as she enters the final weeks in which she can hammer out a deal with Brussels, while reinforcing her argument that the government should focus on getting a deal and avoid the possible disruption of a no-deal Brexit.
Bank Governor Mark Carney said that the greater the clarity on the final deal, the better the economy would look as business will start spending.
“Growth in business investment is expected to stay subdued in the near term, before rebounding as the current Brexit-related uncertainty wanes,” Carney said.
Given the lack of certainty about the impact of the U.K.s exit from the EU on inflation, the bank said its future strategy was uncertain, and did not rule out that a rate rise if the U.K. leaves the EU without a deal, despite the anticipated economic slowdown.