Minouche Shafik, the Bank of England’s top markets official, said the UK is in the middle of an economic shock brought on by the vote to leave the European Union.
Shafik said “there is no doubt in my mind that the UK is experiencing a sizeable economic shock in the wake of the referendum,” in a speech at Bloomberg’s Most Influential conference in London.
Shafik said that the prospect of trade barriers with other EU countries once the UK triggers Article 50 and formally leaves the 28-nation bloc will further hurt growth.
“Any reduction in openness or need to reallocate resources will necessarily imply a slower rate of potential growth for the economy,” Shafik said.
“Moreover, the reality of the protracted process of withdrawing from the EU means we still know very little about the nature of our future trading arrangements, and this uncertainty is weighing on prospects for business investment.”
Business leaders are already starting to look overseas. Around three-quarters of chief executive officers have said they would consider moving operations from the UK to Europe in the wake of Brexit.
According to a survey of 100 CEOs from accountancy firm KPMG earlier this week, 76% are considering relocation, while 72% said they voted to Remain in the European Union in the June referendum. Meanwhile, the Organisation for Economic Co-operation and Development, forecast that Brexit will cut UK GDP growth from 2% to 1% next year.
UK GDP is about £1.8 trillion per year. So that one percentage point cut will wipe out about £18 billion of economic activity.
While the Bank of England cut rates to a record low of 0.25% after the referendum, Shafik said that more cuts and looser monetary policy might be needed to buoy up the economy with the added drag of Brexit.
Shafik said it “seems likely to me that further monetary stimulus will be required at some point in order to help ensure that a slowdown in economic activity doesn’t turn into something more pernicious.”
Earlier this month, Shafik said she would step down from her role at the central bank to join the London School of Economics. Shafik, who joined two years ago from the International Monetary Fund, will leave the BOE in February 2017.