Bank of England governor: No-deal Brexit risk is ‘uncomfortably high’

Mark Carney

The possibility of a no-deal Brexit is “uncomfortably high” Bank of England governor Mark Carney has said today.

Speaking on the BBC’s Today Programme this morning, Mr Carney described such an outcome as “a relatively unlikely possibility, but it is a possibility” and a “highly undesirable” one.

Pushed on what no deal would mean, he said “disruption to trade as we know it”, before adding: “As a consequence of that, a disruption to the level of economic activity, higher prices for a period of time.

He added: “Our job in the Bank of England is to make sure that those things don’t happen. It’s relatively unlikely but it is a possibility. We don’t want to have people worrying that they can’t get their money out.”

With the possibility of such a scenario, Mr Carney said it was “absolutely in the interest” of the EU and UK to have a transition period.

But also stressed that the financial system was robust and could withstand shocks.

“We have made sure that banks have the capital, the liquidity that they need and we have the contingency plans in place, ” he said.

“There is a very broad range of potential outcomes to these Brexit negotiations and we are entering a crucial phase.”

He also said that even with liquidity and capital, the banks could not solve all Brexit-related financial problems and politicians will need to play their part.

“There are a few things the EU government has to solve, ” he said.

“The UK has taken all the steps, all the secondary legislation it needs to. The European authorities still have some steps they need to take. We’re having conversations and we expect those to be addressed.”

The pound declined on the currency markets in the wake of Mr Carney’s comments, falling below the $1.30 mark.

Mr Carney was speaking a day after the Bank of England’s Monetary Policy Committee voted unanimously to raise interest rates from 0.5 per cent to 0.75 per cent - their highest level since March 2009.

He said financial market expectations for rates hitting 1.5 per cent over the next three years were “not a bad rule of thumb, given the current state of the economy”.

The decision to raise rates has been criticised in some quarters, with the British Chambers of Commerce describing it as “ill-judged against a backdrop of a sluggish economy” and Liz Cameron, chief executive and director of Scottish Chambers of Commerce, said the move was “disappointing” coming as it was, in her opinion, “in the absence of conclusive evidence that now is the right time to do so for the UK economy”.

The respected Fraser of Allander think-tank at Strathclyde University also said that, while the increase might suit the UK as a whole, it was not ideal for Scotland.

Institute director Professor Graeme Roy, said: “The interest rate rise – to the highest rate since 2009 – marks an important milestone in the UK’S recovery from the financial crisis.

“While costs for Scottish households with variable interest rate mortgages will rise, the overall cost of borrowing remains low by historical standards.

“However, with earnings growth remaining weak, the increase has the potential to weaken consumer spending and dampen growth.

“Scotland’s growth over the last three years has lagged behind the UK, so while the Bank may judge that the UK economy is in sufficiently robust health to cope with a rate hike, a rate rise in Scotland may be more of a challenge.”

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