Factual error: When Ed and Lorraine Warren are trying to convince the lawyer to represent Arne, there are is a copy of "Jonathan Strange and Mr. Norrel" on the shelf behind them, which was published in 2004. The film is set in 1981.
Factual error: The girl in Ed Warren's hospital room is wearing a UConn sweater with the wordmark from their 2013 logo rebrand that had not existed anywhere near 1981. (00:21:30)
Chosen answer: It's been a while since I've seen the film, but I believe Father Newman was giving Arne the holy water to protect himself and use as a tool against the demon. I don't think there was any indication Newman was possessed. He probably gave it to Arne in secret so the guards wouldn't confiscate it, since it could be broken and used to hurt himself or others.