Carney: Disorderly Brexit may see cut in interest rates
A “DISORDERLY” Brexit transition period may force the Bank of England to cut interest rates or pump money into the economy to stabilise it, governor Mark Carney has suggested.
The UK central bank’s current projections are based on a smooth transition when Britain leaves the EU, he said, before warning that “a sharper Brexit could put monetary policy on a different path”.
Addressing the Society of Professional Economists, he said that if that happened the bank’s Monetary Policy Committee (MPC) would face “a trade-off between the speed with which it returns inflation to target and the support policy it provides to jobs and activity”.
He added: “On this path, the MPC can be expected to set policy to manage any trade-off using the framework it applied following the referendum.”
Following the 2016 referendum, the Bank cut interest rates to a historic low of 0.25% and added
£60 billion to its quantitative easing programme.
Earlier this week, Mr Carney said that Brexit has knocked real household incomes by around £900, and lowered growth by “up to 2%” against what the Bank had expected in 2016 if the UK had voted to remain in the EU.
His speech came after MPS warned that the UK may be forced to remain in the EU’S customs union beyond 2020 because of the Government’s failure to set out alternative plans.
The cross-party Commons Exiting the European Union Committee issued a withering report on Prime Minister Theresa May’s efforts to find a replacement customs system and concluded that extending the current arrangement was the only “viable option” left.
The MPS said it was “highly unsatisfactory” that ministers had yet to agree on the trading and customs arrangements they wanted post Brexit. Existing rules will be extended during the transition period from Brexit in March until the end of 2020.
But the committee said the lack of progress on alternatives, and the need to avoid a hard border in Ireland, meant ministers may have to accept an extension for the customs union.