The harsh reality of Brexit is finally setting in

European stock markets came under heavy pressure and the pound hit a fresh low Monday, June 27, 2016 following the U.K.'s historic vote to leave the European Union.

LONDON — The Bank of England warned about it. Brexiters called it “project fear.” Now it’s becoming reality.

Bank of England governor Mark Carney said the impact of Britain’s decision to leave the European Union is starting to have a real impact on the economy — and on people’s pocketbooks.

“With wage growth moderating and inflation picking up, household spending and GDP growth have slowed markedly,” Carney said at a press conference on Thursday.

He said that Brits should expect a “squeeze” on real wages this year, because wage growth won’t be sufficient to compensate for rising prices in shops.

U.K. begins Brexit process

Brits have already endured nearly a decade of stagnating real wages. According to the independent Institute for Fiscal Studies, average earnings are still substantially below the levels seen in 2008, before the financial crisis.

“It will be more challenging time … I wouldn’t diminish the issues some people will be having,” Carney said.

The bank said prices will jump more dramatically than expected, with inflation rising to 2.7% this quarter, way above the bank’s 2% target.

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Carney made clear the high inflation is due to Britain’s decision to leave the EU.

“It’s because the currency went down. And the currency went down because of a judgment — I am not endorsing the judgment, I am observing the judgment — of the markets that there will be consequences for the U.K.’s medium term prospects,” he said.

The pound is now 14% lower against the dollar than on the day of the referendum. The currency declined 0.6% after the bank released its forecast Thursday.

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The bank said it expects the U.K. economy to grow by 1.7% this year, down from 1.8% it forecast in February. Before the referendum last year, the bank expected 2.3% growth in 2017.

It’s not all gloomy reading though. The bank said real wage growth should pick up in 2018. And it also upgraded its growth forecast for the next two years to 1.7%, up from the 1.6% rate it predicted in February.

But there is one huge caveat: the forecast presented by the Bank of England on Thursday depends on Britain’s “smooth” exit from the EU — one that includes a future agreement on trade, or a transition period.

Prime Minister Theresa May is pushing for a trade agreement to be negotiated at the same time as Brexit, but her EU counterparts made it clear they want to settle the bulk of the divorce proceedings before any future trade talks can start.