Bank not pre­dict­ing a prop­erty mar­ket crash if no EU deal – Car­ney

The Guardian - - NATIONAL - Richard Part­ing­ton Dan Sab­bagh

Mark Car­ney has said that the Bank of Eng­land is not pre­dict­ing a prop­erty mar­ket crash in the wake of a no-deal Brexit, as the head of the cen­tral bank sought to clar­ify a doom-laden brief­ing given to cabi­net on Thurs­day.

The bank gover­nor said the hous­ing slump and a num­ber of grim out­comes, in­clud­ing a dou­ble-digit un­em­ploy­ment rate, were worst-case sce­nar­ios used in stress tests for Bri­tish banks, which are de­signed to en­sure no re­run of the 2008 fi­nan­cial cri­sis.

Car­ney told an event in Dublin “that’s not a pre­dic­tion of what is go­ing to hap­pen”, a day af­ter it emerged that he had told a spe­cial meet­ing of the cabi­net that house prices could fall by 35% in a dis­or­derly, no-deal Brexit in which there was min­i­mal co­op­er­a­tion be­tween the UK and the EU.

It is un­der­stood that was the worst of three no-deal sce­nar­ios pre­sented to cabi­net and is in line with the Bank’s 2017 stress-test sce­nario that also en­vis­aged un­em­ploy­ment hit­ting 9.5% from the cur­rent level of 4% and in­ter­est rates more than dou­bling to 4% from a level of 0.75% to­day.

The Bank’s no deal eco­nomic fore­casts were go­ing to have been made pub­lic around Novem­ber, to in­form MPs who will have to vote on whether to ap­prove what­ever Brexit deal Theresa May ne­go­ti­ates with Brus­sels. But to No 10’s frus­tra­tion, they leaked from the spe­cial cabi­net meet­ing, where Car­ney’s gloomy pre­dic­tions were en­dorsed by the chan­cel­lor, Philip Ham­mond.

Yes­ter­day Car­ney said the banks were tested against such sce­nar­ios in or­der to help the fi­nan­cial sys­tem “plan for the worst”. The re­sults of the stress tests were pub­lished last Novem­ber, and up­dates will be pub­lished in Novem­ber 2018.

Car­ney said the Bank’s stress test­ing – among sev­eral prepa­ra­tions made for a hard Brexit – had not amounted to a fore­cast for the econ­omy.

The gover­nor had been in­vited by May to up­date min­is­ters on the Bank’s prepa­ra­tions for min­is­ters fail­ing to reach a deal with Brus­sels; he at­tended part of the three-and-a-half-hour cabi­net meet­ing be­fore de­part­ing.

“We have been work­ing on mak­ing sure that those in­sti­tu­tions that we con­tinue to su­per­vise [the banks], they’re pre­pared for all po­ten­tial con­tin­gen­cies. Cen­tral to that has been stress-test­ing those in­sti­tu­tions to se­vere out­comes,” Car­ney said.

“That is what you need to do in or­der to make sure that in the bet­ter states of the world that the [bank­ing] sys­tem is very clearly and trans­par­ently ready for [a harsh sce­nario] and able to con­tinue to lend.”

The gover­nor used his speech to warn that the Bank needed to “hope for the best but to plan for the worst” amid mount­ing con­cerns over a nodeal Brexit, with less than 200 days be­fore Bri­tain leaves the EU on 29 March. In­ter­est rates might need to change in re­sponse, he added.

Car­ney said the re­sponse to a nodeal Brexit would not be au­to­matic, and would de­pend on the bal­ance of de­mand and sup­ply in the econ­omy, as well as the level of ster­ling on for­eign ex­changes.

Car­ney had told MPs last week that a no-deal sce­nario could trig­ger a re­newed drop in the value of the pound, caus­ing higher in­fla­tion and squeez­ing Bri­tish work­ers’ wages.

“It is likely the real in­come squeeze will re­turn for house­holds across the coun­try,” he told the com­mons Trea­sury com­mit­tee.

The gover­nor agreed last week to con­tinue in his post un­til the end of Jan­uary 2020, an­ger­ing Brex­iters who have crit­i­cised his warn­ings for eco­nomic growth and liv­ing stan­dards were Bri­tain to leave the EU.

▲ Mark Car­ney said the banks were tested to help plan for the worst

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