HSBC believes BoE should hold off from cutting Bank Rate

HSBC cut its forecast for economic growth in the UK in 2016 and 2017, while revising its forecast for inflation sharply higher in anticipation of a weaker pound.

Significantly, a 'soft' exit that preserved access to the Single Market and free movement of labour "may not be plausible. This suggests a harder, more uncertain exit is a real possibility," HSBC's chief UK economist Simon Wells said in a research report sent to clients.

As a result of the heightened political uncertainty, Wells cut his projection for the rate of growth in the UK's gross domestic product in 2016 from 1.8% to 1.5%.

Looking out to 2017, the economist now expected GDP growth of 0.7%, down from his previous forecast for a rate of expansion of 2.1%.

In parallel, and as sterling depreciated, inflation as measured by the UK's consumer price index was now seen ending 2016 at 1.5% and finishing 2017 at 4.0%. His previous forecasts for CPI inflation were 0.8% and 1.7%, respectively.

For Wells, the most prudent course of action for the Bank of England would be to let any initial panic subside and make a more considered assessment before lowering Bank Rate.

"The UK now faces a period of intense political and economic uncertainty. The voting pattern also highlighted deep divisions in opinion across the country."