UK temperatures reached record highs last month, but the UK economy has not been heating up this summer. Instead, as world trade tensions and worries about a no-deal Brexit have risen, the economy has been slowing down.

At the beginning of the month, the Bank of England’s Monetary Policy Committee (MPC) kept the Bank rate at 0.75 per cent and lowered its forecasts for UK growth this year and next.

Businesses in major foreign economies are investing less because trade tensions have made them less certain about future demand for their products. As foreign economies slow, so does foreign demand for UK products.

Meanwhile, in the UK, uncertainty surrounding Brexit has been having an especially negative effect on business investment.

I’ve been asking my business contacts here in the North-East about these issues, and my fellow agents have been doing so in the rest of the UK.

Across the UK, about three in every ten of our contacts are now even more uncertain than they were ahead of the extension

of Article 50. Only one in ten is more certain.

We reckon that investment this year has been as weak as it’s been in almost a decade, and this has been acting as a drag on the economy.

That is despite solid household spending, supported by the fastest pay growth since 2008 and the lowest level of UK unemployment since the mid-1970s.

In the North-East, unemployment stands at 5.6 per cent.

The path the UK economy takes over the next few years will depend mainly on what sort of Brexit there is.

If there is a no-deal Brexit, then UK economic growth would probably slow further.

Even though three-quarters of the business contacts we have asked say they are “as ready as they can be” for a no-deal scenario, they still think investment and demand for their products would fall in the first year of a no-deal Brexit.

The increased risk of a no-deal Brexit has already caused the pound to fall to its lowest level in two years against other major currencies in recent weeks.

In no-deal scenarios, inflation could be pushed up by tariffs on imports and further falls in the pound. But lower investment and slower growth could push prices down. The MPC would have to judge how best to act given the balance of these effects.

On the other hand, if there is a deal that allows the UK to move smoothly to a new trading relationship with the European Union, then business investment would probably rise, causing growth to accelerate.

If there is a Brexit deal, the Monetary Policy Committee’s judgement is that gradual and limited increases in Bank rate would be appropriate to keep inflation from being above the two per cent target in a few years’ time. The Bank rate is likely to remain substantially lower than before the financial


But no matter what sort of Brexit there is, the MPC will always act to promote the good of the people of the North-East and the wider UK by keeping inflation on target while supporting jobs and growth.

  • Mauricio Armellini has been a member of the Government Economic Service since 2008, when he joined the DWP to lead teams of analysts in areas of key Ministerial attention, such as skills and pensions. In 2013, he went on secondment to the North East Local Enterprise Partnership, where he worked as chief economist until his appointment as Bank of England’s Agent for the North-East in September 2014.