The Courier & Advertiser (Fife Edition)
Bank says preparations have lessened worst case scenario
Bank of England governor Mark Carney has said the worst case hit to the economy of a no-deal Brexit is now “less severe” thanks to preparations made since the end of last year.
In a hearing with the Treasury select committee, Mr Carney told MPs a cliff-edge withdrawal would see the economy shrink by 5.5% rather than the 8% slump previously predicted in November.
His comments come as the crossparty committee of MPs published the bank’s updated analysis of the impact of different Brexit scenarios, following its controversial report in November last year.
In a letter to the committee, Mr Carney said preparations for a no-deal Brexit since then have meant the potential blow to the economy would be “less severe”.
However, he told MPs extra time could help ensure the impact is reduced further still.
He said: “The preparations that have been put in place since November not just at border in terms of border infrastructure, but also initiatives such as the temporary permissions, the improvements on the derivatives market that we’ve negotiated with the EU... the impact of that has been to reduce the worst case scenario.”
He added: “There’s more preparation that can be done, both in terms of public preparation and preparation by businesses.
“It stands to reason that if there were more time, more would be accomplished.”
However, the bank’s analysis of the worst case still makes for painful reading, predicting unemployment would rise to 7% and inflation peak at 5.25%.
Previously it had said the unemployment rate could surge to 7.5% and inflation to 6.5%.
Mr Carney also said the economy was already close to stagnating, given the impact of Brexit uncertainty on businesses in the UK.
He said: “If you look through the underlying trend, our judgment is that the economy is growing very weakly, positive but very close to zero.”
The economy contracted by 0.2% in the second quarter and recent gloomy data has raised fears of a further contraction in the third quarter – which would see the UK enter a technical recession.