Bank of England scales back estimate for worst-case Brexit hit to UK economy

Mark Carney now foresees 5.5% shrinkage in a no-deal scenario

Governor of the Bank of England Mark Carney giving evidence to the Treasury Select Committee at the House of Commons. Photograph: PA

Governor of the Bank of England Mark Carney giving evidence to the Treasury Select Committee at the House of Commons. Photograph: PA

 

A worst-case no-deal Brexit would inflict less severe damage on Britain’s economy than previously thought because of preparations undertaken since the end of last year, Bank of England Governor Mark Carney said on Wednesday.

Mr Carney also said there was almost no chance of the Bank of England reversing its hands-off stance on sterling by intervening in foreign exchange markets to support the pound if it fell sharply after Brexit.

With Britain approaching its October 31st deadline for leaving the European Union, Mr Carney said the Bank of England now estimated the economy would shrink by 5.5 per cent in the event of a chaotic Brexit involving border chaos and a flight from British assets.

That was less steep than the 8 per cent hit seen in a set of scenarios published in November, but would still represent a major blow to the world’s fifth-biggest economy and Carney repeated his call for a transition deal to smooth Brexit.

“Every single trade deal signed in the last four years has at least an 18-month transition,” Mr Carney told MPs. “This is a trade deal in reverse which in many respects is harder . . . It is clearly undesirable to have that adjustment overnight.”

Progress

The Bank of England said progress on simplifying procedures customs checks, new infrastructure at the French port of Calais and Britain’s plan to impose zero tariffs on 87 per cent of imports would help lessen the blow.

Other preparations included a drive by the UK government to auto-enrol companies in a registry of firms doing business with the EU and progress on avoiding disruption in derivatives markets, it said.

At a question-and-answer session with MPs, Mr Carney was asked how far sterling would have to fall before the Bank of England might intervene in financial markets to support it.

“I would underscore that we never have done it,” Mr Carney said, recalling how the pound fell sharply after the 2016 Brexit referendum result but adjusted quickly to the prospect of Britain leaving the EU..

“I can’t see a circumstance that we would intervene, either for market functioning purposes – never say never on that – but I would at least on a personal basis say never for monetary policy reasons,” he said. – Reuters