The Bank of England (BOE) will conclude its two-day meeting today. The bank is expected to leave interest rates unchanged at the current level of 0.75%. Because the rate decision has already been priced by the market, investors will be watching closely at the statement of the bank. In the previous rates decision, the officials said that they were expecting to raise interest rates if the country had a smooth exit from the European Union.
Things have changed since the previous meeting. The country now has a new prime minister in Boris Johnson, who has been inclined on leaving the European Union on October 31st with or without a deal. In recent days, the government has been ramping up preparations on exiting the EU. Further, Boris Johnson has reiterated to the EU that while he wants to leave the region with a deal on trade, he will not seek further extensions.
The decision to leave the EU without a deal will not be a light one. Most analysis show that the country will see a significant downturn if it does exit without a deal. According to the Bank of England, the country’s output could be slashed by more than 8%. The International Monetary Fund (IMF) has said that the country will lose 3.5% of its GDP if it exits without a deal. World Bank has also warned that a no-deal Brexit would lead to a GBP 30 billion hit on the economy.
Companies like Airbus and Jaguar Land Rover has signaled that they will leave the country if there is no deal. Dyson, a leading company owned by a prominent Brexiteer was among the first ones to leave the country. It’s headquarter is now in Singapore.
Prominent Brexiteers believe that the country will do just fine in case of a no-deal Brexit. They believe that the country will continue doing business with the European Union based on the rules of the World Trade Organization (WTO). However, even with such rules, there will be major impacts on how the UK trades with the European Union. For example, there will be major delays at the North Ireland border. Today, trucks take less than 30 minutes to cross. Without a deal, the entire process can take more than three days.
In recent days, sterling has been on a freefall as shown below. The fall accelerated yesterday following the FOMC decision. While a weaker sterling may favor the UK, it might not be very helpful when there is little trade. A Bloomberg opinion piece said that:
There’s a dangerous and deceptive optimism at work here. Beyond the usual dismissal of any criticism of Brexit as “Project Fear,” there’s clearly a belief among some that threatening no deal is kind of a free hit: It can depreciate the pound, boost British exports and heap pressure on Brussels in one swoop. This is playing with fire.