The likely accuracy of these expected responses is extremely unclear. But “no deal” expectations are already affecting financial markets. As the perceived probability of a “no deal” Brexit has risen, sterling has weakened and UK short-term interest rates have shifted downward (Chart 31). Having expected rates to rise modestly at the time of the May Inflation Report, financial markets now expect UK interest rates to fall over the next year or so, before rising gradually. 28  All speeches are available online at www.bankofengland.co.uk/speeches  28  Chart 31: UK short rates Per cent  2 1.75 1.5 1.25 1 0.75 0.5 0.25 0  2014  2016  2018  2020  Latest (cob 18 July)  2022  May 2019 IR  Sources: Bloomberg LP and Bank calculations. Notes: May 2019 IR line refers to 15-day average curve used to condition the May Inflation Report projections. This forward path of interest rates is, in practice, a rather peculiar one. It is likely to reflect a probabilityweighted mix of two quite different possible outcomes for the economy – a “deal” scenario in which the economy grows and a “no deal” scenario in which some expect it could shrink. In that sense, the market path of interest rates is not an accurate reflection of the most likely path of interest rates. To illustrate, consider a simple thought-experiment. Assume, in the event of a “no-deal”, the economy followed the course expected by companies in Chart 30.
Chart 8: Real pay by region 1998-2007  2009-2018  Average annual real pay growth (per cent) 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5  Sources: ONS and Bank of England calculations. Notes: Data at annual frequency using median gross weekly pay in ASHE deflated by CPI. Regional calculations at NUTS1 level. Over the past decade, average growth rates of real pay in every UK region have fallen into negative territory and well below average GDP growth rates in the economy over the same period (1.3%). The worst-affected regions have been the East Midlands and London. Scunthorpe has been towards the lower end of this pack, with real pay falling by, on average, 0.8% per year over the past decade. The distribution of real pay rises across the wage distribution tells a nuanced story (Chart 9). In the decade prior to the crisis, real pay growth was fairly evenly distributed. The one exception was the top two wage deciles, where real pay growth averaged 2 ¼% – 0.5 percentage points higher than in the lower deciles. The global financial crisis (2008-11) saw a sharp and significant amplification of these pre-crisis trends. The distribution of real pay rises fell below zero for all income groups. But while for the top two income deciles real pay shrank by only 2%, for the bottom two deciles it fell by 4%. This widened pre-existing wage inequalities. For the poor, this really was a Great Recession.