- Bank of England Governor Mark Carney privately warned the government of the potentially dire economic consequences of a no deal Brexit.
- Carney reportedly told Prime Minister Theresa May’s cabinet on Thursday that a no deal Brexit outcome “could be as catastrophic as the financial crisis.”
- Among the consequences of no deal would be a 35% house price crash, and the UK’s rate of unemployment more than doubling.
LONDON – Bank of England Governor Mark Carney has privately warned the UK government that a “no deal” Brexit could bring about a housing market crash and a surge in the UK’s unemployment rate, according to several reports.
According to The Guardian newspaper, Carney told UK Prime Minister Theresa May’s cabinet on Thursday that a “no deal” Brexit outcome “could be as catastrophic as the financial crisis” for the economy. Carney attended a special cabinet meeting designed to discuss contingencies for no deal, and was reportedly in the room for around 30 minutes.
Britain is due to leave the European Union in March 2019 but has made little progress in agreeing a deal on its future trading relationship with the EU after exit. This has made a so-called “no deal” scenario, where Britain crashes out of the EU and falls back on WTO trading rules, more and more likely.
Carney’s forecast that a “no deal” Brexit would cause the pound to dive, much like it did the day after Britain voted to leave the EU, and would help cause a steep rise in inflation. That rise in inflation would be compounded by rising trade tariffs as a result of Britain failing to secure a trade deal.
Surging inflation would mean that the Bank of England would struggle to use one of its main tools for assisting the economy – lowering interest rates.
When inflation rises, rates tend to increase as well, as a means of subduing that inflation. The Bank of England would be forced into rate hikes, Carney reportedly said, which in turn would make it more difficult for people to borrow, and service their debts.
Carney also said that “no deal” would cause a crash in UK house prices by as much as 35%, according to a report from The Times. Bank of England economic modelling showed that over three years prices across the UK would likely fall between 25% and 35%, Carney reportedly told the cabinet. A house price crash would likely be linked to rising rates making it more difficult for borrowers.
A “no deal” scenario could also see the UK’s unemployment rate rise to double-figure percentages, Carney said. Currently, the UK’s rate of unemployment is just 4%.
“The worse-than-no-deal scenario was very concerning, but it prompted a lot of broad agreement on the steps that we would need to take next to support the British economy in the event of leaving the EU on poor terms,” a cabinet source told the Guardian.
The Bank of England declined to comment when contacted by Business Insider.
Carney’s dire warnings to the cabinet came just days after it was announced that he has extended his stay at the helm of the central bank until early 2020. He was previously set to leave next summer but was asked to continue by Chancellor Philip Hammond to ensure continuity in monetary policy over the course of Brexit.
On Thursday, the Bank of England’s rate setting Monetary Policy Committee (MPC) unanimously voted to leave interest rates unchanged at 0.75%, just over one month after hiking from 0.5%.
Separately, Carney wrote an editorial in the Daily Mail on Friday discussing the tenth anniversary of the financial crisis, and the steps taken by the Bank of England to protect the UK from such a crisis ever striking again.
“Instead of believing it’s different this time, or hoping that everything will be all right on the night, the Bank of England now thinks about what could go wrong and then prepares our banks so they can keep doing their jobs in case it does,” he wrote during a discussion of the Bank of England’s preparations for Brexit.
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