CARNEY STORM
MARK Carney electrified the Brexit debate last night, after warning a no-deal departure could trigger the deepest recession for 100 years.
In a bleak analysis, the Bank of England Governor said leaving the EU without a deal could put a million people on the dole, spark a run on the pound and cause a 30 per cent crash in house prices.
His warning came hours after the Treasury published its own analysis, suggesting a no-deal exit could deliver a £200billion hit to the economy over 15 years – the equivalent of £3,000 per person.
Chancellor Philip Hammond denied scaremongering and urged MPs to study the analysis, which showed the PM’s Brexit deal would have only a ‘modest’ impact on growth, while delivering on the referendum result and ending free movement.
Mr Carney stressed the Bank’s figures represented a ‘worst case scenario’ rather than a forecast. But he faced a backlash from Eurosceptic MPs, who accused him of mobilising ‘Project Hysteria’ in support of Mrs May’s deal.
Ministers were cautious about endorsing the Bank’s forecasts for fear of being accused of rerunning the Project Fear campaign.
Last night, Theresa May said the Bank’s analysis was ‘entirely independent’. But she added: ‘What the economic analysis that the Government has sent out today shows is that the deal I’ve negotiated is the best deal available for jobs and the economy that honours the referendum and opens up opportunities for us post-Brexit.’
The Bank’s Brexit analysis is similar to warnings given privately to the Cabinet in September. In a ‘worst case scenario’, it said GDP could plunge 8 per cent next year, sending Britain into its deepest recession since the 1920s. It also warns of dramatic rises in inflation, unemployment and interest rates and falling house prices.
But if the Government can strike a deal that sees a ‘close’ economic partnership with the EU, which includes free trade in goods and some trade in business and financial services, GDP could rise by 1.75 per cent over five years.
Mr Carney said: ‘These are scenarios, not forecasts. They illustrate what could happen, not necessarily what is most likely to happen.’
The Bank did say, however: ‘The UK banking sector is strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit.’
Financial markets took Mr Carand
‘Entirely independent’
ney’s warning in their stride, with the pound closing slightly up against the dollar and the euro.
But it sparked fury among Tory Eurosceptics. Jacob Rees-Mogg said: ‘It is unusual for the Bank of England to talk down the pound shows the Governor’s failure to understand his role. This is Project Hysteria. The reputation of the Governor has plummeted by more than any economic indicator. It was always a mistake to appoint a Canadian politician to a senior economic role.’
Former Brexit secretary David Davis warned Eurosceptics would face ‘lies and half-truths’ in the run-up to next month’s vote as ministers try to persuade more than 90 Tory MPs who oppose the deal to fall into line.
He acknowledged the economy would face short-term ‘difficulties’ as a result of Brexit. And he suggested the Commons rebellion could ‘melt away’ if MPs took the doom-laden warnings seriously.
Some economists also questioned if the Bank was right to go so far. Andrew Sentance, a former member of the Bank of England’s monetary policy committee, described the worst case scenario as ‘highly speculative and extreme’. Others backed the Bank.
The Government’s separate analysis suggested growth could be 10.7 per cent lower by 2035 if the UK leaves without a deal, and borrowing £100billion higher.
Under a ‘Norway style deal’ which sees the UK staying in the single market, growth would be 1.4 per cent lower, and under a ‘Canada style’ free trade agreement, it would be 6.7 per cent lower.
This ‘no deal’ model would see growth fall by 9.3 per cent or even as much as 10.7 per cent – the equivalent of a £200billion hit.