Mark Carney warns a no deal Brexit could hike interest rates and send the pound into FREEFALL
- Bank Governor Mark Carney gave an update on the economy after holding rates
- He warned a no Brexit while not the most likely scenario would hit the economy
- Comments will annoy Tory Eurosceptics who hate Carney’s Brexit pessimism
Mark Carney warned a no deal Brexit could send interest rates up and leave the pound in freefall today.
The Bank of England Governor said not transition deal would mean dramatic moves would be needed to protect the economy.
Mr Carney warned there was only so much that the Bank would be able to do to quell turbulence in the economy if negotiations in Brussels fail – issuing a stark warning about delays at the border for goods that hit British business.
He admitted a chaotic Brexit was ‘not the most likely scenario’ but another round of grim warnings infuriated Eurosceptics who loath Mr Carney’s pessimism.
They told MailOnline repetition did not make the Governor’s ‘old, tired message’ more accurate.
Mark Carney warned a no deal Brexit could send interest rates up and leave the pound in freefall today
Mr Carney spoke out in his regular report on the economy after the Bank held interest rates at 0.75 per cent.
He said the Bank had to be prepared for the worst case and this could mean rates moving in ‘either direction’.
Mr Carney said: ‘An abrupt and disorderly withdrawal could result in delays at borders, disruptions to supply chains and more rapid and costly shifts in patterns of production, severely impairing the productive capacity of UK businesses.’
He added that ‘whatever happens, monetary policy will act to ensure price stability and, subject to that, provide support for the economy during the transition’.
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The Governor cautioned that monetary policy might not be able to help soften the economic blow of a no-deal disorderly Brexit.
‘There is little that monetary policy can do to offset large, negative supply shocks, which occur relatively rarely in advanced economies,’ he said.
Tory Brexiteer Michael Fabricant told MailOnline: ‘He trots out the same old, tired message.
‘Repetition does not make a prediction more accurate.’
Mr Carney (centre) admitted a chaotic Brexit was ‘not the most likely scenario’ but another round of grim warnings will infuriate Eurosceptics who loath Mr Carney’s pessimism
In its quarterly inflation report published alongside the rates decision, the Bank sketched out how it could respond to various Brexit scenarios.
‘The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction,’ it said.
In a stark warning, the Bank cautioned over queues at ports and a significant hit to UK manufacturers if the UK crashes out of the EU without a deal.
The Bank’s report revealed the toll Brexit is taking on the country, with business investment now predicted to screech to a complete halt overall this year as uncertainty wreaks havoc on company spending decisions.
Consumer spending has been helping prop up the economy, with a summer heatwave shopping spree set to see growth accelerate to 0.6 per cent in the third quarter, up from 0.4 per cent in the previous three months, according to the Bank.
But this is likely to have been only a temporary boost, and the Bank expects growth to pare back to 0.3 per cent in the fourth quarter before steadying at 0.4 per cent thereafter.
This saw the Bank trim its forecast for growth overall in 2018, to 1.3 per cent from 1.4 per cent predicted in August, while it also nudged its 2019 outlook down to 1.7 per cent from 1.8 per cent.
Mr Carney warned there was only so much that the Bank would be able to do to quell turbulence in the economy if negotiations in Brussels fail – issuing a stark warning about delays at the border for goods that hit British business (file image of the Port of Dover)
Its forecasts are based on a ‘smooth’ exit from the EU, with financial markets pencilling in around one rate rise a year for the next three years.
However, the Bank admits the economic outlook will ‘depend significantly on the nature of EU withdrawal’.
It offered a glimmer of hope for worried businesses, as it said policymakers saw greater clarity on Brexit emerging ‘in the relatively near term’.
ING economist James Smith said a rate hike was unlikely in a no-deal scenario.
‘Given the widescale disruption that would likely occur, we suspect policymakers would ‘look through’ any spike in prices caused by a weaker pound, and cut interest rates/increase quantitative easing fairly swiftly,’ he said.
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