UK interest rates predicted to fall to zero in wake of Brexit
UK interest rates are likely to hit zero in the next six months as the Bank of England moves to shore up the economy after the vote to leave the EU.
David Tinsley, UK economist at UBS, said Brexit meant “sharply lower growth, a large drop in the pound, and further easing from the Bank of England”.
He expects two rate cuts from the central bank over the next six months. It would take rates from a current record low of 0.5% to zero. Rates have been at 0.5% since 2009 as Britain has struggled to recover from the 2008 financial crisis.
UBS also expects the vote to put off rate rises in the US.
Economists had thought Janet Yellen, governor of US central bank the Federal Reserve, would put rates up in September – something UBS now thinks won’t happen.
Mr Tinsley expects UK growth rates to fall to zero in the second half of the year, the economy had been growing by about 2%, and in the long term there could be even greater damage.
Much depended on future trade negotiations, and what type of access the UK had to the European single market.
“In our view [Brexit] could lower long-run UK GDP by about 3.0% under a scenario in which access is very restricted,” he said.