Carney ‘guarantees’ no-deal Brexit growth downgrade

Bank of England boss Mark Carney has warned he would “guarantee” a sharp downgrade to UK growth in a no-deal Brexit, but said policymakers would provide all possible support to the economy.

The governor told MPs on the Treasury Select Committee it was certain the Bank’s next inflation report in May would forecast a “material” fall in growth if the UK quits the EU with no deal.

He said: “If we come back in May and if there’s no deal, no transition, I guarantee the path of GDP (gross domestic product) in our forecast will be materially lower.”

He suggested delaying Article 50 was still not a better option than a deal or transition period and cautioned uncertainty was likely to linger for at least a year after Brexit even if an agreement is struck.

But in signs of a row-back on previous warnings from the Bank that it could raise rates as high as 5.5% to contain a no-deal fallout, Mr Carney added it would provide “whatever monetary support it can” in the worst-case scenario.

In his annual report published alongside the Commons committee hearing, Mr Carney wrote that there was not an equal chance of rates being cut and raised in response to a no-deal Brexit.

It followed a recent speech by monetary policy committee member Gertjan Vlieghe confirming he believed it was more likely that rates would be cut than raised.

But Mr Carney cautioned MPs: “We’ll do what we can, but we shouldn’t over-sell what we can do.”

The comments came as the Bank also announced it would be allowing banks to access extra funds to ensure they do not run out of money amid Brexit.

It said it would hold weekly liquidity auctions from the start of March until the end of April, though Mr Carney said this was part of “normal contingency planning” and confirmed there were no current signs of funding issues.

MPs took the opportunity to press Mr Carney on the Bank’s views on delaying Brexit, with speculation mounting that the Government will opt to extend Article 50.

He said: “There’s a big difference between an extension of Article 50, even a long extension, and an agreement with a transition to a known end stage.

“Wherever we’re headed, it would serve the economy well to have a transition period to that new world.”

The Bank’s recent inflation report revealed the impact Brexit uncertainty is having on the economy, with the 2019 growth forecast slashed to 1.2% – the weakest for 10 years.

It has been hampering businesses investment for some time and is now taking its toll on consumer spending.

Mr Carney told MPs: “There is quite a marked diversion in terms of households’ views of their own financial circumstances, their own employment prospects and the general economic circumstances.

“That dichotomy is being manifested in fewer big ticket purchases, the housing market is not that active at present in terms of numbers of transactions, and obviously prices are very low.

“Auto sales have been relatively weak and other consumer durables have been relatively weak.”

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