Bank of England Gov. Mark Carney said Britain’s economy appeared to be on course to stagnate in the current quarter, and underlying growth still looked muted even when the effect of Brexit volatility was stripped out.
Carney, in a speech at the Jackson Hole gathering of global central bankers in the United States on Friday, said a snapshot of Britain’s economy suggested it was “currently close to equilibrium, operating just below potential.”
Britain’s economy shrank during the three months to June for the first time since the global financial crisis, due in large part to a surge in activity earlier in the year as companies rushed to get ready for an original Brexit deadline.
At the start of this month the BoE forecast growth of 0.3 percent for the current calendar quarter.
But business surveys over the course of August have painted a lackluster picture.
“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.”
However, Britain’s job market has remained strong, with near record-low unemployment and the fastest wage growth in 11 years.
Carney said global economic momentum remained soft despite markets’ increased expectations that central banks around the world would loosen policy, but the outlook for the British economy hinged mostly on the nature and timing of Brexit.
New Prime Minister Boris Johnson has promised to take Britain out of the European Union on Oct. 31, even if that means leaving without a transition deal, risking major disruption to supply chains and trade ties.
Weak business investment was the most obvious consequence of the uncertainty over when and how Britain would leave the EU, Carney said.
“There is overwhelming evidence that this is a direct result of uncertainties over Britain’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.