BOE warns of weaker incomes for years while UK adjusts to Brexit

We have conditions on various Brexit scenarios: BOE's Carney

The Bank of England has warned that Brexit will weaken incomes for years as new UK data suggests firms are already holding back on investment.

In its latest assessment of the U.K. economy, the Bank of England (BOE) kept interest rates on hold and warned that a squeeze on households could intensify with inflation set to rise higher in the short term than previously forecast.

In its latest monetary policy statement, the BOE warned it could do little to offset the negative effect of Brexit.

"Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years," the statement read.

Official figures released Thursday showed a big miss for industrial production in the United Kingdom during March, as growth in the sector weakened for the third consecutive month.

The data drop showed U.K. construction, industrial production and manufacturing numbers for March all missed estimates.

Sterling fell on the news and subsequently extended falls after the BOE voted 7-1 to maintain interest rates at 0.25 percent.

UK seeing gradual slowing of consumer momentum: BAML

Rob Wood, chief U.K. economist at Bank of America Merrill Lynch, said the negative effects of Brexit had potentially started to surface.

"Weak industrial data provides more evidence the economy is slowing as the inflation squeeze on consumers tightens and uncertainty over the terms of Brexit deters firms from taking the plunge with investment projects.

Let's not go overboard, manufacturing was still up 2.3% year-on-year. But signs of gradual slowing in economic momentum are building," he said via email Thursday.

Not our place to question UK/EU's Brexit negotiating positions: BOE's Carney

Speaking at a press conference after the announcement, BoE Governor Mark Carney said higher inflation was a direct reflection of the fall in sterling as the market re-priced the UK's medium term prospects.

And he said BOE projections for the U.K. were based on a "smooth" Brexit with no alternative scenario considered.

"As has been the case since our August forecast, we have assumed that the process of leaving the European Union would be a smooth one. That means there will be an agreement about future trading arrangements and there will be a transition, or an implementation period, from the negotiation to that new agreement," said Carney.

The former head of global equities trading at Deutsche Bank, Kerim Derhalli, has backed the theory that uncertainty over Brexit is stifling business.

"Inflationary pressures and uncertainty around Brexit will persist and rushing into a decision now could be dangerous. The Bank of England's verdict shows that they are mindful of the possibility of lower growth as companies put investment on hold in the face of this uncertainty.

"While there are cases for a rate hike driven by consumer price inflation, the pressures aren't enough and it seems unlikely that we will see any changes until at least the end of 2018," said the CEO and founder of invstr via email.