Bank of England scales back estimate for worst-case Brexit GDP hitReuters | London | Updated: 04-09-2019 20:41 IST | Created: 04-09-2019 20:40 IST
A worst-case no-deal Brexit would inflict less severe damage on Britain's economy than previously thought because of preparations undertaken since the end of last year, Bank of England Governor Mark Carney said on Wednesday.
Carney also said there was almost no chance of the BoE reversing its hands-off stance on sterling by intervening in foreign exchange markets to support the pound if it fell sharply after Brexit. With Britain approaching its Oct. 31 deadline for leaving the European Union, Carney said the BoE now estimated the economy would shrink by 5.5% in the event of a chaotic Brexit involving border chaos and a flight from British assets.
That was less steep than the 8% hit seen in a set of scenarios published in November, but would still represent a major blow to the world's fifth-biggest economy and Carney repeated his call for a transition deal to smooth Brexit. "Every single trade deal signed in the last four years has at least an 18-month transition," Carney told lawmakers. "This is a trade deal in reverse which in many respects is harder...It is clearly undesirable to have that adjustment overnight."
The BoE said progress on simplifying procedures customs checks, new infrastructure at the French port of Calais and Britain's plan to impose zero tariffs on 87% of imports would help lessen the blow. Other preparations included a drive by the government to auto-enroll companies in a registry of firms doing business with the EU and progress on avoiding disruption in derivatives markets, it said.
At a question-and-answer session with lawmakers, Carney was asked how far sterling would have to fall before the BoE might intervene in financial markets to support it. "I would underscore that we never have done it," Carney said, recalling how the pound fell sharply after the 2016 Brexit referendum result but adjusted quickly to the prospect of Britain leaving the EU.
"I can't see a circumstance that we would intervene, either for market functioning purposes - never say never on that - but I would at least on a personal basis say never for monetary policy reasons," he said. The BoE can deploy a relatively small foreign exchange fund for monetary policy purposes, which had gross assets of $23.6 billion as of the end of August, according to official data published on Wednesday.