Britain is ramping up preparations for a no-deal Brexit by spending an extra $2.6 billion to make sure the country is ready to leave the European Union with or without a divorce deal at the end of October. Prime Minister Boris Johnson, who took power last week, has pledged to leave the trading bloc without an agreement in three months unless the EU agrees to renegotiate the deal agreed by his predecessor Theresa May.
Ministers have warned that one of the most hotly contested elements of the divorce agreement the Irish border backstop will have to be struck out if there is to be a deal, something the EU has repeatedly said it won’t agree to. In his first major policy announcement, new finance minister Sajid Javid said the extra money will fund a nationwide advertising campaign, ensure the supply of vital medicines, help Britons living abroad, and improve infrastructure around ports.
With 92 days until the UK leaves the European Union it’s vital that we intensify our planning to ensure we are ready, Javid said. We want to get a good deal that abolishes the anti-democratic backstop. But if we can’t get a good deal, we’ll have to leave without one. Wrenching the United Kingdom out of the EU without a deal means there would be no formal transition arrangement to cover everything from post-Brexit pet passports to customs arrangements on the Northern Irish border. Many investors say a no-deal Brexit would send shock waves through the world economy, tip Britain into a recession, roil financial markets and weaken London’s position as the pre-eminent international financial center.
Meanwhile, the Bank of England cut its growth forecasts on Thursday in the face of increased Brexit worries and a slowing global economy, but gave no indication it was considering lowering interest rates like other central banks. A day after the US Federal Reserve reduced rates for the first time since the global financial crisis, the BoE said it still expected to raise borrowing costs gradually though this now hinged on a global pickup as well as a smooth Brexit.
Profound uncertainties over the future of the global trading system and the form that Brexit will take are weighing on UK economic performance, Bank of England Governor Mark Carney said after the announcement. Until they are resolved, shifting perceptions of these factors will drive volatility in market interest rates, equity prices and currencies’ values.
The BoE’s Monetary Policy Committee (MPC) voted 9-0 to keep rates unchanged at 0.75 per cent, as expected in a Reuters poll of economists, and said that even after a no-deal Brexit it would not automatically cut rates. With new Prime Minister Boris Johnson committed to taking Britain out of the European Union on October 31 regardless of whether he can secure a transition deal markets see increased risks of a disorderly, no-deal Brexit.
The BoE said this had led to a marked depreciation of the sterling exchange rate which is near a three-year low against a basket of other major currencies and that as of mid-July, business uncertainty about Brexit had become more entrenched. Underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade, the BoE said.