The impact of a no-deal Brexit would be “lost jobs, lower wages, higher inflation” and UK customs infrastructure is unlikely to be ready for it, Mark Carney suggested to a Parliamentary Committee on Tuesday.
The Treasury Select Committee has previously asked the Bank to look at the scenario of transition to World Trade Organisation trading terms for the UK, which would be the default in the event of no deal at the end of the hoped-for 21 month transition in January 2020.
“Our assumption has been that we will look at that,” said the Bank’s Governor.
“The work we’re doing thus far suggests the principal value of looking at that is it demonstrates the importance of some of the assumptions that have to be made.”
“The question has to be: in 20 months would we be ready to have in place all the customs arrangements…that are necessary for a WTO trading relationship with the European Union? A transition to WTO could look like no-deal, no transition, or it could look more like a seamless move to WTO. We’ll just expose all that so you can have a proper assessment of it.”
Highways Agency officials told The Independent in June that planned Channel port lorry parks will definitely not be available by March 2019 – too late to help tackle the estimated 30-mile lorry queues Dover is expected to face in the event of a collapse in exit talks.
Mr Carney stressed that a no-deal next March with no transition would be even more economically damaging.
“This would be a large negative shock to the economy – no deal, no transition – there should be no doubt about that,” he said.
“[It would have] an unprecedented supply shock that would have temporary components – think of the trucks at Dover and the immediate friction. The more permanent issues are around lost access to major markets or major suppliers – and how does a business re-orient itself? That takes time. Some of your capital and, unfortunately, some of your workers may be stranded – that’s a polite world, but it wouldn’t be a happy situation to be in. That means lost output, lost jobs, lower wages, higher inflation all things being equal.”
The risk of the UK crashing out of the European Union as soon as next March has risen after MPs gave an almost universally hostile reception to Theresa May’s Withdrawal Agreement and draft Political Declaration last week.
Earlier this month Mr Carney said he did not think the risk of chaotic Brexit next year was high, but that if it did happen the Bank could be forced to raise interest rates.
Asked on Tuesday whether the chance of a no-deal has now risen he said: “We’re going to find out relatively soon! Some of you may know already.”
“We’ve always operated from the view that this might happen so get the system prepared. We’ve been preparing for it since the day after the referendum effectively. We’re quietly confident that we have in place all the measures we could have in place.”
“We have emphasised from the start the importance of having some transition between the current arrangements and the ultimate arrangements. So we welcome the transition arrangements in the [EU] Withdrawal Agreement. ..and take note of the possibility of extending that transition period.”
He also claimed the Bank of England would be something of a “sideshow” in the event of a chaotic Brexit.
“This would be a very unusual situation. It is very rare to see a large negative supply shock in an advanced economy. You would have to stretch back at least in our analysis until the 1970s to find analogies.”
“This is not a financial crisis round two, where the Bank of England and other central banks were centre-stage, this is a real economy shock and therefore central banks have a role but we’re more of a sideshow.”ost output, lost jobs, lower wages, higher inflation all things being equal.”