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Could a no deal Brexit affect your mortgage? This is what the experts say

Is the reaction of the markets to a threatened no deal Brexit – or even an orderly Brexit – worrying you? How might it affect your finances, your mortgage repayments or even your chance of securing a new mortgage from your lender?

Some good news: the Bank of England has just announced that it will be holding the interest rates at 0.75 per cent for now. But if you are home owner, or only just looking into getting a mortgage as a first-time buyer, what does this announcement mean for you?

Martijn Van Der Heijden, Chief Strategy Officer at online mortgage brokerage Habito, comments on the implications of the decision for both first-time buyers and those already with a mortgage, ‘Interest rates remain relatively low which will be welcome news for those looking to get a good deal on their mortgage. This “wait and see” approach from the MPC (Monetary Policy Committee) is something we also see reflected in our own data with a surge in buyers choosing fixed deals for five years or more as they try to “Brexit-proof” their mortgage and lock in the same rate until 2024 and beyond.

‘We have also seen positive figures recently on the take up of buy-to-let and first time buyer mortgages, something which has led to lenders offering more competitive products to support people moving.’

A no deal Brexit could mean a sharp rise in inflation and the fall of the pound, which would mean that the Bank would need to reconsider interest rates, either raising or lowering them depending on what’s needed to support the economy.

So, it looks like now could be the time to consider securing the best fixed-rate mortgage if you are buying your first home or remortgaging. Doing this now could make particularly good sense given the stark warning the Bank of England has issued about the potentially detrimental effects of Brexit on the UK economy. And it will give you certainty. No bad thing in these uncertain times.

BY ANNA COTTRELL

Source: Real Homes

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No-deal Brexit to accelerate London house price drop

London house prices could sink up to seven per cent next year if no Brexit deal is reached by the 31 October deadline date, according to the latest research.

If the UK exits the European Union with a deal London house prices will fall by a smaller 4.7 per cent, continuing the trend of declining property prices in the capital.

Research by accountancy firm KPMG published this morning shows that the average property in the capital would cost £453,000 in 2020 following a smooth exit. However, after a no-deal Brexit the average London house price would drop to £422,000.

A no-deal Brexit would trigger a drop in house prices in every region of the UK, with the sharpest fall of 7.5 per cent seen in Northern Ireland.

The latest research shows that a drop of 10 to 20 per cent is “not out of the question” if markets react “stronger than anticipated”.

KPMG chief economist Yael Selfin said: “The housing market has been stuck in the slow lane since 2016 – with the changes to stamp duty and the uncertainties of Brexit putting the market on the back foot.

“As our forecasts show, a no-deal Brexit will see house prices decline significantly across the UK in 2020 by an average of 6.2 per cent, with more severe falls of around 10 to 20 per cent also possible if we look at historic precedents.”

Last month the Bank of England’s monetary policy committee (MPC) said that if the UK’s departure from the EU is smooth and some recovery in global growth is seen it could raise interest rates “at a gradual pace and to a limited extent, as it unanimously chose to hold the main interest rate at 0.75 per cent, where it has stood since August last year.

The committee said under no deal, the “interest rate decision would need to balance the upward pressure on inflation, from the likely fall in sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand”.

In July, MPC member Gertjan Vlieghe said the bank might have to slash interest rates to nearly zero in the event of a no-deal Brexit.

By Jessica Clark

Source: City AM

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UK house prices remain stagnant as no-deal Brexit looms

UK house prices grew at less than one per cent for the ninth month in a row in August, Nationwide figures revealed today, prompting calls for Boris Johnson to slash stamp duty.

The value of homes did not grow between July and August, Nationwide’s House Price Index found.

But they did grow 0.6 per cent on an annual basis and 0.3 per cent over the last three months.

However, UK house prices slipped to an average price of £216,096 in August, down from July’s £217,663.

Nationwide warned that Brexit uncertainty is weighing the market down despite healthy economic signals.

“While house price growth has remained fairly stable, there have been mixed signals from the property market in recent months,” Robert Gardner, Nationwide’s chief economist, said.

No-deal Brexit threat weighs down UK house prices
While mortgage approvals have been stable and new buyer enquiries have improved, UK consumer confidence slumped in August as a no-deal Brexit looms.

The threat of Brexit uncertainty will continue to cloud the UK housing market, Gardner added.

“Housing market trends will remain heavily dependent on developments in the broader economy,” he said.

“In the near term, healthy labour market conditions and low borrowing costs will provide underlying support, though uncertainty is likely to continue to exert a drag on sentiment and activity.”

Howard Archer, chief economic adviser to the EY Item Club, added: “With the economy struggling and the outlook currently highly uncertain, we suspect that house prices will remain soft despite the recent pick-up in housing market activity – which could well prove temporary.”

Could Boris Johnson cut stamp duty?
Prime Minister Boris Johnson is yet to announce his domestic agenda since he took power in July, but he is reportedly considering slashing stamp duty to boost UK house prices.

This couldn’t come soon enough, according to experts, who believe it would help lift housing stock supply and boost house price value as Johnson takes the UK closer to a no-deal Brexit.

Guy Harrington, chief executive of property lender Glenhawk, said: “The need for more stock is as urgent as ever and the government would be foolish not to address stamp duty relief as a priority.”

Archer added: “Housing market activity – and possibly to a lesser extent prices – could be given a lift in 2020 if the government cuts stamp duty significantly in the Budget later this year.”

Kevin Roberts, director of the Legal & General Mortgage Club, added: “The critical issue is that there are simply not enough homes to meet the demand from consumers, whether people buying their first property or those who want to downsize.”

By Joe Curtis

Source: City AM

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House prices would flounder in six months after no-deal Brexit – Reuters poll

Britain’s drifting property market would probably take a hit from a disorderly Brexit, with average prices slipping about 3% nationally in the ensuing six months and as much as 10% in London, a Reuters poll of housing experts found.

Roughly 85% of respondents said both UK and London house prices would fall in the six months subsequent to leaving the European Union without an agreement.

But if Britain departs the EU with a transition deal – the scheduled leave date is Oct. 31 – house prices are due a mild 1.5% lift over the following two quarters. They would rise 1.4% in the capital.

Results from the Aug. 13-20 survey show an otherwise tepid outlook for national price rises in coming years, at rates not far off an already-mild consumer price inflation rate and despite the recent sharp fall in sterling.

Indeed, the results suggest that foreign demand for property will be weaker than in previous years where declines in the pound have spurred buying, particularly in London, as it makes housing cheaper for those holding stronger currencies.

The survey also indicates in the near-term at least that housing, the bedrock of British household wealth, is not likely to give a lift to the economy, which contracted for the first time in 6-1/2 years in the second quarter.

Indeed, an overwhelming majority of respondents who answered an additional question in the first Reuters UK housing market survey since Boris Johnson took over as prime minister said risks to the housing market were skewed to the downside.

“Despite the new PM and team in government there are big icebergs ahead, not least the apparent willingness to leave the EU without a deal,” said property market consultant Henry Pryor. “This is likely to spook the markets before it reassures them.”

At the same time, there are fundamentals cushioning the market from falls. Hansen Lu, analyst at consultancy Capital Economics, notes the ongoing shortage of homes, which nearly always underpins British house prices.

Mortgage rates are also very low and not set to rise any time soon despite hawkish rhetoric in past months from Bank of England policymakers, and recent wage gains have lifted household spending power somewhat.

“Both factors are helping to prevent the current slump in house price growth from developing into an outright fall in prices. Yet on the other hand, Brexit uncertainty, as well as the high level of house prices relative to incomes, continues to weigh on buyer demand,” said Lu.

Others, like Tony Williams of Building Value, are more sanguine about the overall housing market’s prospects following Britain’s impending departure from the EU, no matter how rough.

“With no-deal, there will be a knee jerk action in which demand will fall followed by prices over the first six months of the UK’s new status,” notes Williams. “That said, life after a no-deal Brexit will revert to type.”

Average UK house prices are forecast to rise 1.0% this year, 1.8% next and 2.7% in 2021, little changed from 1.2%, 2.0% and 2.5% in a survey taken in May.

London house prices, already down 5% from their recent peak, are due to fall 2.0%. They are not due to rise at all next year, followed by a 2.0% lift in 2021, a slightly weaker view than what was predicted a few months ago.

Capital Economics’ Lu notes that with these recent falls and some recent wage gains outstripping inflation, London’s average house-price-to-earnings ratio has slipped to 12 times from a recent peak of 13.4.

“That adjustment, while welcome, is still small relative to past house price gains. With Brexit uncertainty set to bite further and mortgage interest rates at their floor, we think London’s fall in house prices has further to run.”

Polling by Manjul Paul and Richa Rebello

Source: UK Reuters

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Pound set for biggest weekly gain in nearly 2 months as no-deal Brexit opposition grows

The pound gained for a second consecutive day on Friday after a stream of resilient economic data this week calmed sentiment on the health of the UK economy and as opposition parties launched plans to block a no-deal Brexit.

British retail sales unexpectedly expanded in July and signaled that consumers were taking the prospect of Brexit in their stride for now, helped by firm wage data and modest inflation pressures, according to data released earlier this week.

“This suggests consumer spending is still holding up and still supporting the economy even though overall output contracted in the second quarter,” said Marshall Gittler, chief strategist at ACLS Global.

“It ties in with the relatively high wage growth that we saw earlier in the week.”

Further fueling demand for the British currency, especially against the euro this week, was growing momentum to try to stop Prime Minister Boris Johnson from taking Britain out of the European Union at the end of October without a deal.

Against the euro, the pound scaled a 11-day high against the single currency, up 0.5% at 91.45 pence.

Versus the dollar, the pound rose for a second consecutive day, up 0.3% at $1.2121 and is poised for its biggest weekly rise since late June.

The opposition Labour party said it would call a vote of no-confidence in Johnson’s government as soon as it believes it can win it and seek to form a temporary government under leader Jeremy Corbyn to delay Brexit.

While derivatives indicate market players may be trimming back some short sterling positions, the currency’s prospects remain clouded by the risk of Britain exiting the European Union without a divorce agreement.

Reporting by Saikat Chatterjee; Editing by Keith Weir

Source: UK Reuters

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Expectations for UK economy fall to lowest level since 2011

Public expectations for how the UK economy will fare over the next 12 months are at their lowest level in more than seven years, according to a new report released today.

The Office for National Statistics (ONS) has said the outlook for the general economic situation for the year ahead is worse than at any point since the final quarter of 2011.

Expectations for higher unemployment for the year ahead have also been climbing and are now higher than at any point for the past five-and-a-half years.

The data, sourced from a Eurobarometer consumer survey, comes days after the ONS found that the British economy shrank for the first time in nearly seven years during the second quarter of 2019.

Over the three months to June, output fell 0.2 per cent, missing expectations of a flat performance and dropping 0.5 per cent compared with the previous year.

Amanda Mackenzie, chief executive of charity Business in the Community, said: “If this latest survey is anything to go by, the British public has got its finger firmly on the pulse of the UK economy.

“Prescient Brits have been expecting higher unemployment and for the general economic situation to deteriorate, and following last week’s negative GDP number they may well be proved right.”

She added: “With a no-deal Brexit looming, the UK economy is arguably at its most crucial juncture for a decade and it’s no surprise people feel less secure about their jobs and the broader economic picture.

“Staff anxiety levels will almost certainly increase if we enter a turbulent period for the UK economy and businesses have a key role to play in their employees’ wellbeing, not just economic but personal.”

Today’s report, which was focused on personal and economic well-being in the UK, also found that net financial wealth per head increased by three per cent for the quarter ending March 2019 compared to the same quarter a year ago, led by increases in equity and investment fund shares.

By Sebastian McCarthy

Source: City AM

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Sterling revisits two-year lows as UK economy shrinks

Sterling skidded again on Friday, hitting its lowest in more than two years, after an unexpected second quarter contraction in the economy alarmed investors already fretting that Britain is headed for a no-deal Brexit.

The pound, which has lost 3.7% of its value against the dollar since arch-Brexiteer Prime Minister Boris Johnson’s arrival in office in late July, sank to $1.2056, the weakest it has been since January 2017, and was last down by 0.5% at $1.2072.

GRAPHIC: Sterling at new 31-month low – tmsnrt.rs/2MS7lSb

Against the euro, the pound slid to a new two-year low of 92.885 pence and was last down by 0.7% on the day.

The British currency has been close to being the worst performing in the developed world these past couple of weeks since Johnson became prime minister on July 24.

Britain’s economy shrank at a quarterly rate of 0.2%, the first contraction since 2012 and below all forecasts in a Reuters poll.

Year-on-year economic growth slid to 1.2% from 1.8% in the first quarter, Britain’s Office for National Statistics said, its weakest showing since the start of 2018.

British government bond yields fell as investors sought safety in fixed income assets.

UK domestic stocks weakened, although London’s export-heavy blue chip FTSE 100 index clawed its way back into positive territory as sterling plunged.

Some investors now expect Britain to enter a technical recession, which represents two consecutive quarters of negative growth, if the economic situation continues to worsen.

“Overall, these are clearly a disappointing set of figures which have significantly raised the likelihood of a technical recession,” said Azad Zangana, senior European economist and strategist at Schroders.

The pound has suffered a torrid few weeks as investors priced in the growing risk of Britain exiting the European Union under Johnson on Oct. 31 without a deal to smooth the transition.

BNP Paribas raised on Friday the probability of a no-deal Brexit to 50% from 40%. Some analysts say there could be more pain to come.

“As the political risk premium rose, sterling was the worst-performing major currency in each of May, June and July, but the negative risk premium can still rise further,” RBC Capital Markets analyst Adam Cole said.

Johnson is planning to hold a parliamentary election in the days after Brexit if lawmakers sink the government with a no-confidence vote, British media have reported, further unnerving currency traders.

It is growing increasingly likely that Johnson will face a vote of no confidence soon after Sept. 3, when parliament returns from its summer recess, analysts say.

Johnson says Britain, which voted for Brexit in 2016 by a 52%-48% margin, must leave the EU on schedule on Oct. 31, with or without a divorce deal with the bloc. Delaying an election until after Brexit could be a tactic to ensure that happens even if parliament withdraws support for his government.

Vasileios Gkionakis, global head of forex strategy at Lombard Odier, said he was worried about an election, but was also ready to unload some sterling short positions he had accumulated since a lot of bad news had been already priced in.

“If no-deal (Brexit) increases in probability, then of course sterling would be a sell, but until then I’m becoming a bit more neutral,” Gkionakis said, adding that he expects sterling to “settle around $1.20” before market participants reassess their expectations of that outcome.

Others in the market mirrored Gkionakis’ views on Friday.

Paul Hollingsworth, senior European economist at BNP Paribas, said he was “reluctant to enter short sterling positions” and that he found “risk-reward more attractive to consider entering structural long sterling positions as we get closer to September”.

The shrinking economic growth in the second quarter did not make investors more confident that the Bank of England will cut interest rates in September. Some economists expect the central bank to embark on more easing soon, however.

“As uncertainty continues to loom over the UK economy, the difficult run of data is expected to continue and the BoE will need to consider its next step carefully as its global peers embark on further rate cuts,” said Geoffrey Yu, head of the UK Investment Office at UBS Wealth Management.

Money markets are pricing in a 25 basis point cut by January 2020.

Reporting by Olga Cotaga with; additional reporting by Tommy Wilkes; Editing by Mark Heinrich

Source: UK Reuters

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Business chiefs warn Boris Johnson UK not ready for no-deal Brexit

Britain is still “underprepared” for a no-deal Brexit in October, a major business lobby group has warned Boris Johnson.

In a new report, the CBI – which represents 190,000 UK businesses – said firms had been undermined by unclear advice, cost and timelines on what leaving the EU without a deal would mean.

And they make clear that the European Union itself is also not ready for a no-deal outcome.

The warnings came as it was reported that the Government is planning a £100m no-deal advertising blitz over the next three months, as Mr Johnson ordered a shake-up of Whitehall to ready the UK to leave without an agreement on 31 October.

In its new report, the CBI says 24 out of 27 areas of the UK economy will face disruption if the country leaves the EU without a deal, and it calls on ministers to “step up” preparations for a hard exit.

The CBI calls on the Government to “immediately” put the civil service “back onto a no-deal footing” and review all Brexit preparedness advice drawn up for the previous exit date of March 2019.

The Government should meanwhile launch a “targeted” communications campaign and adopt a “refreshed, transparent” approach to its planning, the CBI says.

Ministers are also urged to consider shortening the summer Parliamentary recess and curtailing party conferences to allow enough time to pass vital no-deal Brexit legislation.

Meanwhile the EU is told to “come to the table and commit” to matching the “sensible” planning already carried out by the UK.

‘DAMAGE’

The CBI’s deputy-director general Josh Hardie said: “Businesses are desperate to move beyond Brexit. They have huge belief in the UK and getting a deal will open many doors that have been closed by uncertainty.

“There is a fresh opportunity to show a new spirit of pragmatism and flexibility. Both sides are underprepared, so it’s in all our interests. It cannot be beyond the wit of the continent’s greatest negotiators to find a way through and agree a deal.

“But until this becomes a reality, all must prepare to leave without one. It’s time to review outdated technical notices; launch an ambitious communications campaign for every firm in the country and rigorously test all Government plans and IT systems.”

While the CBI is urging businesses and government to do all they can to prepare for a no-ldea, Mr Hardie warned that neither side of the negotiations could completely “mitigate” the disruption of Britain leaving without a deal.

“We can reduce but not remove the damage of no-deal,” he said.

“It’s not just about queues at ports; the invisible impact of severing services trade overnight would harm firms across the country.”

The CBI’s warning came as The Telegraph reported that Mr Johnson is planning to channel £100m into a no-deal spending advertising blitz over the next three months.

The push could include a leaflet on no-deal preparations being sent to every home in the country.

According to the paper, Chancellor Sajid Javid will unveil wider plans for an extra £1bn in no-deal prepartion spending later this week.

Mr Johnson has meanwhile set up a new “exit strategy committee” in Whitehall to lead on Brexit planning, The Times reports, with Cabinet Office minister Michael Gove heading up a new “operations committee” that will meet daily and lead on no-deal work.

Written by: Matt Honeycombe-Foster

Source: Politics Home

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Sterling drops again as markets raise bets on no-deal Brexit

Sterling extended its decline on Monday as the outlook for the currency turned bleaker, with traders increasing their bets on a no-deal Brexit ahead of the results of the Conservative Party’s leadership election.

The pound’s weakness was in contrast to the general calm in broader currency markets, and signalled growing unease among investors over the likelihood of eurosceptic former foreign minister Boris Johnson becoming the next prime minister.

The result of the weeks-long internal party election will be announced on Tuesday, with Johnson widely expected to have beaten foreign minister Jeremy Hunt. The winner will become prime minister on Wednesday.

The pound last traded down 0.2% at $1.2476, not far from the 27-month low reached last week, having declined 1.7% against the dollar so far this month.

Against the euro, it fell to 89.98 pence.

Some investors are worried Johnson could pull Britain out of the European Union on Oct. 31 without a trade deal in place in order to appease members of his Conservative Party and frustrated pro-Brexit voters, three years after Britons voted by a narrow majority in a referendum to leave the EU.

“To save the Conservative Party, he (Johsnon) has to deliver Brexit on Oct. 31,” said Helen Thomas, CEO of macroeconomic consulting firm BlondeMoney.

Market participants have been buying more options since early May to protect against losses in sterling and have consolidated their positions in the past few days, according to three-month sterling risk-reversals, which measure demand for buy and sell options on the British currency.

Three-month implied volatility in the pound has risen since the beginning of the month and has hit its highest level since early April, signalling that traders are bracing for a rocky ride for sterling.

Still, levels are well below the highs achieved before Britain’s initial March 29 deadline to leave the EU, which was extended after Prime Minister Theresa May failed to pass a withdrawal deal in parliament.

(For a graphic on ‘Implied sterling volatility surges around Oct 31 deadline’, click here tmsnrt.rs/2O9MJHo)

Hedge funds have also increased their short positions on the pound to $5.94 billion via currency futures in the week to July 16, a 10-month high, based on Commodity Futures Trading Commission data.

“The market will look to price in the chance of a no-deal Brexit at 50/50,” said Neil Jones, head of European hedge fund sales at Mizuho.

Morgan Stanley said it now saw a 30% chance of Britain leaving the EU without a deal compared to 25% previously.

Though investors look anxious, BlondeMoney’s Thomas argued they aren’t worried enough.

“The risk (of a no-deal Brexit) is really, really underpriced now,” she said, adding that she expected to see sterling fall to parity against the euro in the event of Britain crashing out of the bloc without a deal.

Voting by Conservative Party members in the leadership election ends at 1600 GMT on Monday. The announcement of the winner is expected around mid-morning on Tuesday.

Some analysts expect the pound to hover around its current levels, at least for now, given that the UK parliament will enter summer recess shortly and therefore won’t make any new progress on Brexit negotiations.

“Sterling already trades at crisis levels and typically struggles to go much lower,” said Jordan Rochester, forex strategist at Nomura.

In a note to clients, Citi analysts said that a no-deal Brexit would likely prompt the Bank of England to cut interest rates, which “could help offset the negative economic effects of ‘crash out’ and support the currency.”

Reporting by Olga Cotaga; Editing by Gareth Jones

Source: UK Reuters

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No-deal ‘risks year-long recession, tumbling pound and house price crash’

Britain would enter a year-long recession on a par with the early 1990s, the pound would crash by 10%, and house prices would tumble, according to the latest grim look at the economic toll of a no-deal Brexit.

The UK’s fiscal watchdog warned that Britons would face surging price inflation following a plunge in the value of the pound, but said the Bank of England was likely to slash interest rates from 0.75% to just 0.2% by the end of 2020 to help offset the economic woes.

In its Fiscal Risks Report, the Office for Budget Responsibility (OBR) said that, if the UK crashed out of the EU without a deal on October 31, the UK would be tipped into a “full-blown” recession by the end of the year.

£30bn Amount added to public borrowing each year under a no-deal Brexit
OBR Fiscal Risks Report
But experts said the OBR’s assessment is a far cry from the Bank of England’s doomsday report published late last year and the OBR itself admitted it was “by no means a worst-case scenario”.

The OBR – headed by chairman Robert Chote – said gross domestic product (GDP) could drop by 2.1% over the next year, driven lower as companies cut their investment amid higher trade costs and the wider economic woes.

Consumer spending would also fall as wages are squeezed by the Brexit-hit pound and higher trade tariffs, compounded by under-pressure wage growth, while unemployment would also initially increase – peaking at just over 5% in 2021.

All this would knock the housing market, with prices likely to plummet by nearly 10% between the start of 2019 and mid-2021.

The economy would start to pick up again in mid-2021, according to the OBR.

Its scenario analysis also looks at the impact on the public finances, warning that a cliff-edge Brexit would add around £30 billion a year to borrowing from 2020-21 onwards and around 12% to national debt as a share of GDP by 2023-24.

The OBR added that. while the plummeting pound will give a fillip to exports, this will be largely offset by the immediate hike in trade tariffs.

While the report makes for painful reading, the OBR said its stress tests are not as catastrophic as the Bank’s controversial no-deal Brexit report last November, which predicted an 8% contraction in the economy, a 25% crash in the pound and a 30% dive in house prices.

It has instead based its analysis on the International Monetary Fund’s outcome scenario.

It said: “A more disruptive or disorderly scenario, closer to the stress test we considered two years ago, could hit the public finances much harder.”

It comes as the Treasury Select Committee separately on Thursday said it has asked the Bank and the Treasury to provide updated scenario analysis of a no-deal Brexit ahead of Parliamentary votes before the October deadline.

Dr Ivan Petrella, associate professor of economics at Warwick Business School, said the OBR gives a “much more optimistic assessment of the potential dangers of a no-deal Brexit than the Bank of England, the Treasury and most commentators are currently predicting”.

He added: “I think the short-term impact projected by the OBR is a much more likely outcome than the severe recession predicted by the Bank of England.”

But he warned that a “rushed no-deal exit is likely to have a more prolonged negative impact on the economy”.

Source: Shropshire Star