The Brexit economy: the storm clouds are gathering


The Bank of England is seriously considering raising rates for the first time in 10 years against a backdrop of lacklustre economic growth, as a Guardian analysis shows the Brexit vote sapping business confidence and hitting household income.

As Mark Carney, the Bank’s governor, prepares to hike the cost of borrowing for the first time since 2007 from as soon as next week, key barometers of economic strength are faltering. Nevertheless, City analysts expect Carney and his panel of rate setters on the monetary policy committee to vote for a rate hike on 2 November.

Threadneedle Street is thought to have backed itself into a corner – with financial markets reckoning there is an 80% chance of a hike – after the MPC said at its last meeting in September it could move to increase rates within the “coming months”. Stepping back from the brink may now cause the pound to fall and would undermine the central bank’s credibility, having been called an “unreliable boyfriend” once before for failing to act on its hints.

As the Bank considers reversing last year’s emergency rate cut to 0.25% from 0.5% to avert a Brexit-induced recession, the Guardian’s tracker of economic news is now painting a picture of tougher times for consumers. Against this backdrop, Carney has been warned of the risks for raising interest rates.

Writing in the Guardian, David Blanchflower, a former member of the Bank’s rate-setting monetary policy committee, said: “This is no time for a rate rise as the economy slows.”

To gauge the impact of the Brexit vote on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE 100. Economists make forecasts for seven of those barometers ahead of their release, and in four cases the outcome was worse than expected.

Households are reining in spending amid a protracted squeeze on living standards from rising inflation, coming as a result of higher import costs due to the drop in the pound since the referendum. High street sales slumped last month, pushing the UK retail sector to its lowest growth rate in four years for the three months to the end of September.