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UK economy on course to stagnate in third quarter, says Bank of England governor

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Mark Carney, governor of the Bank of England (BOE), speaks at the bank's quarterly inflation report news conference in Canada in London on Augst 1, 2019. - Bank of England governor Mark Carney warned on Thursday of the risks of leaving the European Union with no deal as the institution lowered its economic growth forecasts for 2019 and 2020. (Photo by Chris J Ratcliffe / POOL / AFP) (Photo credit should read CHRIS J RATCLIFFE/AFP/Getty Images)

Bank of England governor Mark Carney has said that the UK’s economy is on course to stagnate in the third quarter.

He also said that underlying growth looked muted even with Brexit volatility stripped out.

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Carney said Britain’s economy was “currently close to equilibrium, operating just below potential” in a speech at the Jackson Hole gathering of global central bankers.

The economy shrank in the second quarter for the first time since the global financial crisis a decade ago, due in part to companies preparing for the original Brexit deadline of end of March.

Earlier this month, the Bank of England forecast 0.3 per cent growth for the current quarter, but August business surveys have painted a bleaker image.

“The UK economy contracted slightly last quarter and surveys point to stagnation in this one,” Carney said. “Looking through Brexit-related volatility, it is likely that underlying growth is positive but muted.”

Despite this, the job market is still going strong with the fastest wage growth in 11 years and unemployment at near record-lows.

Meanwhile, Carney also said that weak business investment was an obvious result of Brexit uncertainty in the lead up to the 31 October leave date.

“There is overwhelming evidence that this is a direct result of uncertainties over the UK’s future trading relationship with the EU, and it serves as a warning to others of the potential impact of persistent trade tensions on global business confidence and activity,” Carney said. 

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The governor reiterated that the Bank of England may have to ease monetary policy to help the economy in the event of a no-deal Brexit, but added that there were limits to how much it could tolerate a rise in inflation caused by a falling pound.

Carney maintained that a no-deal Brexit was “not a given” despite its increased likeliness just two months out.