Chances of 'no deal' Brexit 'uncomfortably high', warns Bank of England chief
4 min read
The chances of Britain leaving the European Union next year without a deal are “uncomfortably high”, the governor of the Bank of England has warned.
In a major intervention, Mark Carney said both those on the UK and European sides should “do all things” to avoid such a “highly undesirable” outcome.
“I think the possibility of a no deal is uncomfortably high at this point,” he told the BBC’s Today programme.
The central bank chief said that while banks were prepared for all outcomes, financial institutions had been “stockpiling” in preparation for a worst-case scenario.
He continued: “What we have done is we have made sure that the banks have the capital that they need, have the liquidity that they need and that we have the contingency plans in place so that if there were to be a no deal Brexit without any transitions, so something that truly is by accident, because it’s absolutely in the interests of the European Union and UK to have a transition."
When asked if a no deal Brexit would be a “disaster”, he added: “It is highly undesirable. Parties should do all things to avoid it.”
And when pressed on whether the banks’ preparations were the finance industry’s equivalent of the military being put on standby to make sure there was food in the supermarket, he said: “It’s not a perfect analogy because we’ve already done the stockpiling. The banks have already stockpiled."
Mr Carney said a Bank of England exercise had revealed that the “undesirable and still unlikely possibility” of a no deal Brexit could lead to a fresh recession, a slump in house prices, and a sharp hike in the cost of borrowing.
He added: “We ran the system a year ago through a stress test, this is not a prediction of what would happen in a no deal scenario, but to give you an idea of what they can withstand: real estate prices going down by more than a third – house prices and commercial real estate – interest rates going up by almost 4%, unemployment going to 9% and the economy going into a 4% recession, so we did that in order to try and create the kind of hits to balance sheets and the calls on their capital and liquidity that meant they had to build these buffers to be in a position in case something bad happened.
“We have been planning for very difficult circumstances and the banks are ready.”
The Governor’s intervention comes a day after the Bank of England raised the interest rate for just the second time in a decade, from 0.5% to 0.75% - the highest level since March 2009.
Mr Carney denied that the rise was to give leeway for a potential crash landing after leaving the EU, insisting it was a “modest adjustment” and the “right thing for the economy on the path the economy is on”.
BOTCHED
Labour MP Chris Leslie, of the pro-EU People’s Vote campaign, said: "Mark Carney has confirmed that Brexit has already done serious damage to the British economy and threatens to do much, much more.
"A no deal Brexit where we crash out of the EU with no agreement at all or a blind Brexit, where we leave with nothing more than a few paper promises, threaten to destroy jobs, life chances and opportunities.
"Any form of botched Brexit will mean less economic growth, less money for public services and more cuts to health, education and local government.
"None of this was on the side of Boris Johnson and Michael Gove’s bus and nobody voted for any of it."
The warning over a 'no deal' Brexit was also seized on by Labour MP David Lammy - a member of the pro-Remain Best for Britain campaign - who said it strengthened the case for a fresh referendum.
"The no deal exercise carried out by the Bank of England shows the devastation a nightmare no deal would bring," he said.
"Brexit is not the answer to this country's looming questions. It doesn't help plug the income gap between the rich and the poor, it doesn’t help our economy grow, and it doesn’t help our schools or hospitals, which depend on our EU membership.
That view was echoed by Liberal Democrat Brexit spokesperson Tom Brake, who said the comments from the Bank of England bigwig should "serve as a stark warning to the Conservative party".
But prominent Tory Brexiteer Andrea Jenkyns fumed: "Mr Carney should focus on preparing for Brexit instead of making overtly political interventions and weakening the Government's hand at the negotiating table."
She said it was "deeply irresponsible" for the Bank of England chief to "yet again engage in Project Fear-style rhetoric".
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