Carney house price crash warning
Values could fall by more than a third if it’s No Deal, Bank chief tells ministers
HOUSE prices could tumble by more than a third if Britain leaves the EU without a deal, Mark Carney warned ministers yesterday.
In a stark assessment, the Bank of England governor told the Cabinet that spiralling mortgage rates would crash the housing market, plunging millions into negative equity.
Sources said he even compared the potential consequences of a no-deal Brexit to the catastrophic 2008 financial crisis, it was reported last night.
The warning came as ministers yesterday agreed to ‘ ramp up’ preparations for the possibility of leaving without a deal at a special Cabinet meeting.
In a presentation to ministers, Mr Carney set out how the Bank had modelled the economic impact of leaving without a deal. He set out a series of potential scenarios based on talks breaking down with varying levels of acrimony between the two sides. In the worst case scenario, Mr Carney said sterling would plunge, driving up inflation and interest rates and leading to a 35 per cent house price fall over three years.
Ministers present at the meeting are understood to have questioned the reliability of the modelling and argued that the Government would use fiscal levers to prevent such a devastating situation. Mr Carney’s warning is likely to generate anger among Brexiteers and claims of a revival of ‘Project Fear’.
It came as Whitehall departments yesterday published 28 ‘technical notices’ outlining the potential impact of a no- deal Brexit.The warnings included:
British motorists may need to apply for two permits to drive on the continent if there is no deal.
UK-made products including cars may need extra safety checks before being sold in Europe.
Websites that store customers’ data abroad could face extra hurdles – creating problems for internet banking and online retailers.
Business leaders said the documents showed firms would be hit with a ‘sledgehammer’ due to the extra paperwork needed if a deal is not struck by March 29.
Whitehall sources last night told the Mail that an even more stark set of technical papers is due to be published later this month.
Mr Carney yesterday outlined two scenarios for if the UK leaves without a deal. The first, in which relations with Europe are ‘harmonious’, would see the economy continue to grow – but at a slower rate than under Theresa May’s Chequers plan.
The second, in which the EU decides to ‘punish’ Britain, would lead to double- digit unemployment. Net migration would be negative – meaning people were leaving the country because of the economic malaise. In the short term, trade would be badly damaged and planes would be grounded, a source said. Mr Carney said the Bank would be unable to cut interest rates to offset the economic impact of no-deal in the worst case. But he suggested it was unlikely the EU would behave so irresponsibly.
One cabinet minister told the Guardian: ‘ The Government wouldn’t just stand by. It didn’t in 2008. [Mr Carney] wasn’t saying it was all going to happen but I think there is a recognition that you do have to contemplate the worstcase scenario.’
Mr Carney, accused by Brexiteers of being a leading proponent of ‘Project Fear’, recently had his contract extended until 2020.
Meanwhile, in the papers released yesterday, motorists were told they could need international driving permits to use European roads if the EU decides not to recognise UK licences. Holidaymakers without the correct papers could have their cars turned away at the border or be fined. Drivers will be able to apply for the documents, costing £ 5.50, at 2,500 Post Office branches across the country.
But there are two different types – and not all EU countries require the same one. Motorists driving to France then Spain, for example, would need both. AA president Edmund King said: ‘This will be an extra burden for UK drivers wanting to take a holiday abroad.’
Business groups last night warned disruptions to trade, such as extra red tape, will damage the economy if there is no deal.
Carolyn Fairbairn, director-general of the Confederation of British Industry, said: ‘These notices make clear firms would be hit with a sledgehammer in the event of “no deal”. Extra costs, duplication of certification and interruptions to data flows would damage the economy, with a knock- on impact for living standards.’ Federation of Small Businesses chairman Mike Cherry said: ‘With each release of the Government’s technical notes, we get a clearer picture of how dangerous and damaging a sudden no-deal Brexit will be for our small businesses. What these technical notes highlight is the risk that, in particular, exporting and importing small firms will be hit with additional cost burdens and complicated levels of compliance that they simply can’t handle.’
Ministers last night said the ‘ramping up’ of preparations for a nodeal Brexit meant the UK would be ‘ready for all possible scenarios’.
Brexit Secretary Dominic Raab said: ‘I think we need to be honest about this. In the event of a nodeal scenario, which is not what we want, we would face short-term risks and short-term disruption.’
Former Brexit minister David Jones said: ‘Mark Carney should stop going around spreading gloom and despondency and concentrate on the benefits of Brexit.’
‘Firms hit with a sledgehammer’