Bank of England: We got it WRONG on Brexit

The Bank of england has admitted it was too pessimistic about the impact of the referendum vote amid signs the British economy has entered a Brexit ‘sweet spot’.

The central bank cut interest rates to a low of 0.25pc in August and warned the UK ‘is likely to see little growth’ in the second half of 2016 following the leave vote.

But in a dramatic climbdown yesterday, deputy governor Ben Broadbent said there was ‘little doubt’ the economy has performed ‘somewhat more strongly’ than predicted just two months ago.

Broadbent ( picturedleft), a key lieutenant of governor mark Carney ( picturedright), said the brighter outcome was partly down to the resilience of the housing market and the fall in the pound ‘cushioning the impact of greater uncertainty’. But he also warned of an ‘ insidious’ impact on business investment which meant ‘decisions to expand that might otherwise have been taken are delayed’.

The comments came as figures suggested the economy grew by 0.3pc or even 0.4pc in the third quarter of the year – compared with the 0.1pc predicted by the Bank.

It is now thought that the Bank – seen by critics as a leading proponent of Project Fear during the referendum campaign – will be forced to tear up its gloomy forecasts when it publishes its inflation report next month. There are also doubts over whether the central bank’s monetary Policy Committee will cut interest rates in November. Simon Wells, chief european economist at HSBC, said: ‘The MPC is likely to be divided as to how to react to this news and a November rate cut could be a close call.’

Broadbent conceded the Bank had been too gloomy. ‘There’s little doubt the economy has performed better than the surveys suggested immediately after the referendum and somewhat more strongly than our forecasts as well,’ he said. ‘The central projection in the August inflation report didn’t involve a recession, simply a slowing in the rate of growth. But that slowing looks so far to have been more moderate than we feared.’

Broadbent insisted the Bank was right to cut interest rates in August and cautioned against over-interpreting the ‘very noisy’ data.

A report by research group markit said its index of activity across the British economy – where 50 is the cut off between growth and decline – rose from 53.2 in August to 53.7 in September. That was the best reading since January and outstripped the 52.6 in the eurozone – its worst performance for 20 months.

The figures suggested the UK economy grew by 0.3pc in the third quarter of the year, down from 0.7pc in the second quarter but far stronger than the 0.1pc forecast by the Bank.

Chris Williamson, chief economist at markit, said: ‘The risk of recession in the second half of 2016 has all but evaporated.’ howard Archer, chief european and UK economist at IHS Global Insight, said he expects growth of 0.4pc in the third quarter.

Paul hollingsworth, UK economist at Capital economics, said Britain is now in a ‘Brexit sweet spot’ as lower interest rates and the weak pound support the economy.

he forecast growth of 1.5pc in 2017 – almost double the 0.8pc pencilled in by the Bank.