logo
Plus   Neg
Share
Email

Carney Defends Bank Of England's Brexit Analysis

ukbank-sep12_04dec18-lt.jpg

Bank of England Governor Mark Carney on Tuesday defended the central bank's analysis that a no-deal Brexit would cause a severe recession in the UK, the kind not even seen during the global financial crisis a decade ago.

The central bank and Carney faced lot of criticism with several pro-Brexit lawmakers accusing them of fear-mongering.

Responding to questions on the same from lawmakers at a hearing on Tuesday, Carney said some criticism was "entirely unfair".

"There's no exam crisis. We didn't just stay up all night and write a letter to the Treasury Committee. You asked for something that we had, and we brought it and we gave it to you," the BoE chief told lawmakers.

Carney said the probability of the worst-case Brexit scenario, which is the country leaving the EU without any agreement on future relationship, especially on trade, and a transition period, actually happening was low.

"Tail risk is tail risk," he said.

The BoE predicted that the economy could shrink as much as 8 percent next year in the event of a disorderly Brexit. House prices could rise 30 percent and inflation could hit 6.5 percent as the pound dives.

The jobless rate could rocket to 7.5 percent from 4.1 percent now and interest rates could be hiked sharply.

Carney added more to these on Tuesday, saying food prices could jump as much as 10 percent if there is a 25 percent slump in the pound due to a no-deal Brexit.

Deputy Governor Ben Broadbent explained to lawmakers that food prices could climb under a no-deal Brexit as the import costs would be higher due to a weaker pound.

Some food items could face tariffs and costs at borders would be higher due to customs checks.

The BoE Governor also reminded lawmakers that the UK ports were not ready to deal with a disorderly Brexit when the UK will trade under rules set by the World Trade Organization.

"At this point in time, the ports are not ready for a move to an administered-WTO relationship," Carney said.

BoE policymakers also dismissed the idea that a Norway-model Brexit would work for the UK. Under this arrangement a non-EU member, such as Norway, remains a member of the single market by joining the European Economic Area, or EEA. However, the country will not have a say in rule-making.

A Norway-style Brexit has been suggested as a temporary arrangement by some lawmakers, that can allow time for the UK to form a new permanent relationship with the EU.

Deputy Governor Jon Cunliffe pointed out that the British financial industry is "20 times bigger than Norway's" and that the UK would feel "quite uncomfortable" in a group where it has no role in setting rules.

Carney also voiced concern that the UK would become a rule taker, with regard to financial services industry, in a future arrangement with the EU. That would be "highly undesirable", he said.

Elsewhere on Tuesday, former Governor of the Bank of England and Carney's predecessor Mervyn King wrote in a column for Bloomberg that the bank's worst-case scenario that the UK economy would take a savage hit due to a disorderly Brexit was not "plausible".

For comments and feedback contact: editorial@rttnews.com

Economic News

What parts of the world are seeing the best (and worst) economic performances lately? Click here to check out our Econ Scorecard and find out! See up-to-the-moment rankings for the best and worst performers in GDP, unemployment rate, inflation and much more.

Follow RTT