Brexit has already cost the UK economy £40bn a year – or £800m per week – since the referendum due to prolonged uncertainty, according to Bank of England economist Gertjan Vlieghe.
The rate-setter also said a no-deal Brexit would most likely to lead to an easing of monetary policy, while even in the case of a deal a slower pace of hikes would be required.
Read more: Bank of England slashes UK growth forecast
Until now the Bank’s Monetary Policy Committee (MPC) has always stated the monetary policy response to Brexit would not be automatic and could be in either direction.
Governor Mark Carney has also indicated the potential need for rate hikes if Britain leaves the EU without a deal.
But Vlieghe’s speech at the Resolution Foundation offers an insight into the MPC’s thinking when it comes to the path ahead.
He said: “In the case of a no-deal scenario I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening.
“We will have to judge in real time how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.”
The MPC member said the UK was underperforming due to Brexit uncertainty and that the economy had lost two per cent of GDP relative to a scenario in which Britain did not choose to leave the EU.
It equated to £40bn a year or £800m a week, he said, despite no material changes in the relationship between the UK and EU having occurred yet.
He said: “Firms have been saying in a number of surveys that the uncertainty about our future relationship with the EU is a source of concern for them that has been weighing on their investment spending.
“As we approach the March 2019 deadline without a clear way forward, concerns have intensified and investment has weakened further,” he added.
Vlieghe insisted he was not passing comment on the “desirability” of various Brexit outcomes, but tackling the issue under the scope of monetary policy.
He said his view a year ago that one to two quarter point hikes per year would be needed has now changed due to the global growth slowdown as well as domestic issues.
He said: “The net balance of economic news has been to the downside.
“I therefore consider that the appropriate pace of monetary tightening is somewhat slowed than I judged it to be a year ago.”
He added that evidence of stable UK growth and rising inflation was needed before he could support an interest rate hike.