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Bank of England says worst-case Brexit scenario now 'less severe' - business live Bank of England says worst-case Brexit scenario now 'less severe' - business live
(32 minutes later)
Q: Would the impact of Brexit be worse if it happened just before or after a general election?
“Pass “ smiles Mark Carney.
Q: What would happen if Britain suffered a no-deal Brexit and a trade-war induced global downturn, at the same time?
Mark Carney says the Bank believes a global trade war could knock 1% off UK GDP. But he doesn’t want to simply add that to the ~ 6% fall in a worst-case Brexit.
Asked about the global economy, Mark Carney says world growth has not reaccelerated as fast as expected.
He says this is because there is now a full-blown trade war between the US and China, which is also hurting business confidence worldwide.
Carney warns :
We are close to a manufacturing recession across the advanced economies, and important parts of the emerging world, which has had a knock-on impact on trade.
But he doesn’t think we face a global recession, as the fundamentals in the major economies are still quite strong.
Q: Would Mark Carney possibly consider staying on longer at the Bank of England?
The governor reminds the committee that he has extended his tenure twice already, to help to UK prepare for Brexit.
Q: You’re due to leave on 31st January -- that could be the same day as Brexit (if another extension is agreed).
Currently I’m leaving months after the Brexit day, points out Carney - reminding the committee that the existing deadline is 31 October.
Q: But if there was to be a cliff-edge on 31 January, could you stay on to help?....
The appointment of a new governor is a matter for the government, Carney replies.
Q: Has the Brexit crisis made the governorship less appealing?
MPC member Jonathan Haskell says not - it’s just part of the job.
Fellow MPC member Gertjan Vlieghe says Brexit makes the role “more challenging”, but any suitable candidate should relish that...
Mark Carney has also provided this chart, showing how the Bank has scaled back its forecasts for a worst-case Brexit.Mark Carney has also provided this chart, showing how the Bank has scaled back its forecasts for a worst-case Brexit.
Back in November, the BoE warned that a disorderly Brexit could wipe 7.5% off Britain’s economy.Back in November, the BoE warned that a disorderly Brexit could wipe 7.5% off Britain’s economy.
It now believes GDP would only decline by around 5.5% -- still a big shock, but a less damaging one. Unemployment would double to 7%, and inflation would more than double to 5.5%.It now believes GDP would only decline by around 5.5% -- still a big shock, but a less damaging one. Unemployment would double to 7%, and inflation would more than double to 5.5%.
In the letter to the committee, Carney cites several reasons for the new, less severe forecasts, including border preparations and the UK’s new tariff plans.In the letter to the committee, Carney cites several reasons for the new, less severe forecasts, including border preparations and the UK’s new tariff plans.
Q: How would the Bank of England protect the economy after a no-deal Brexit?Q: How would the Bank of England protect the economy after a no-deal Brexit?
Carney says the Bank stands ready to intervene to provide liquidity into the financial system if needed.Carney says the Bank stands ready to intervene to provide liquidity into the financial system if needed.
It could cut the requirements on banks to hold capital, potentially releasing up to £300bn of balance sheet firepower.It could cut the requirements on banks to hold capital, potentially releasing up to £300bn of balance sheet firepower.
And on monetary policy, the Bank would have to decide whether to cut interest rates to stimulate growth, or raise them to tackle inflation.And on monetary policy, the Bank would have to decide whether to cut interest rates to stimulate growth, or raise them to tackle inflation.
Q: Do you still think food prices would jump by 10% after a no-deal Brexit?Q: Do you still think food prices would jump by 10% after a no-deal Brexit?
Mark Carney says the tariff schedule laid out by the government earlier this year show that tariffs on food from Europe would be lower than the Bank thought last November.Mark Carney says the tariff schedule laid out by the government earlier this year show that tariffs on food from Europe would be lower than the Bank thought last November.
Previously, the Bank thought tariffs would add 5% to food prices, while a weaker pound would add another 5%, adding up to 10%.Previously, the Bank thought tariffs would add 5% to food prices, while a weaker pound would add another 5%, adding up to 10%.
It now thinks almost all the impact will come from exchange rate moves -- so food prices would be 5% to 6% higher.It now thinks almost all the impact will come from exchange rate moves -- so food prices would be 5% to 6% higher.
Q: How would your forecasts change if there was a no-deal Brexit, not a smooth transition?Q: How would your forecasts change if there was a no-deal Brexit, not a smooth transition?
Mark Carney says the economy would slow, the exchange rate would fall further, and inflation would rise in a no-deal scenario.Mark Carney says the economy would slow, the exchange rate would fall further, and inflation would rise in a no-deal scenario.
Parliament’s Treasury Committee are questioning the Bank of England about its latest inflation report, and Brexit.Parliament’s Treasury Committee are questioning the Bank of England about its latest inflation report, and Brexit.
They’re hearing from governor Mark Carney, chief economist Andy Haldane, and two members of the Monetary Policy Committee - Professor Jonathan Haskel and Dr Gertjan Vlieghe.They’re hearing from governor Mark Carney, chief economist Andy Haldane, and two members of the Monetary Policy Committee - Professor Jonathan Haskel and Dr Gertjan Vlieghe.
John Mann MP, who is interim chair, kicks off: Is the UK economy stagnating?...John Mann MP, who is interim chair, kicks off: Is the UK economy stagnating?...
Mark Carney says that there has been disruption to the economy recently, due to Brexit preparation, stockbuilding, car factory shutdowns.Mark Carney says that there has been disruption to the economy recently, due to Brexit preparation, stockbuilding, car factory shutdowns.
If you look through the underlying trend our judgement is that the economy is growing very weakly, positive but very close to zero.If you look through the underlying trend our judgement is that the economy is growing very weakly, positive but very close to zero.
Mann says that Carney has sent the committee a letter about Brexit preparations, saying that the Bank’s worst-case scenario for a no-deal Brexit is now ‘less severe’.Mann says that Carney has sent the committee a letter about Brexit preparations, saying that the Bank’s worst-case scenario for a no-deal Brexit is now ‘less severe’.
Would a further delay help?Would a further delay help?
Governor Carney replies that various preparations taken since last November (including work at the ports and improvements on derivatives contracts) have “reduced the worst case scenario”.Governor Carney replies that various preparations taken since last November (including work at the ports and improvements on derivatives contracts) have “reduced the worst case scenario”.
This is the worst case scenario, he insists, not the most likely outcome. And he also indicates that another Brexit delay would be helpful.This is the worst case scenario, he insists, not the most likely outcome. And he also indicates that another Brexit delay would be helpful.
There is more preparation that can be done, both in terms of public preparation and preparation by businesses.There is more preparation that can be done, both in terms of public preparation and preparation by businesses.
It stands to reason that if there was more time, more would be accomplished.It stands to reason that if there was more time, more would be accomplished.
As well as Brexit, Britain’s economy has been hurt by the shockwaves from the US-China trade war.As well as Brexit, Britain’s economy has been hurt by the shockwaves from the US-China trade war.
And new figures just released shows that Donald Trump is failing to narrow the trade gap with either China or Europe.And new figures just released shows that Donald Trump is failing to narrow the trade gap with either China or Europe.
The US Commerce Department reports that the goods trade deficit with China rose by 9.4% to $32.8bn. Imports jumped by 6.4% despite the imposition of tariffs at the US border, while exports to China fell 3.3% in July.The US Commerce Department reports that the goods trade deficit with China rose by 9.4% to $32.8bn. Imports jumped by 6.4% despite the imposition of tariffs at the US border, while exports to China fell 3.3% in July.
The goods trade deficit with the European Union jumped to a record high.The goods trade deficit with the European Union jumped to a record high.
Overall, the US trade deficit dipped by 2.7% month-on-month in July to $54bn. But overall, the gap between what America imports and exports is 8% higher than a year ago. Trade Wars aren’t as easy to win as you might hope....Overall, the US trade deficit dipped by 2.7% month-on-month in July to $54bn. But overall, the gap between what America imports and exports is 8% higher than a year ago. Trade Wars aren’t as easy to win as you might hope....
The US trade deficit declined in July to $54 billion, but for the year to day, the deficit is up by $28.2 billion or 8.2 percent from the same period in 2018, the Commerce Department reports this morning.#tradedeficitThe US trade deficit declined in July to $54 billion, but for the year to day, the deficit is up by $28.2 billion or 8.2 percent from the same period in 2018, the Commerce Department reports this morning.#tradedeficit
The U.S. trade deficit fell 2.7% in July, but no matter. Overall gap is huge and growing. Fight with China has merely shifted the source of the deficit to other countries. Ironically, a relatively strong U.S. economy is contributing https://t.co/ZNLtXwd9NV pic.twitter.com/X62fPBgpPzThe U.S. trade deficit fell 2.7% in July, but no matter. Overall gap is huge and growing. Fight with China has merely shifted the source of the deficit to other countries. Ironically, a relatively strong U.S. economy is contributing https://t.co/ZNLtXwd9NV pic.twitter.com/X62fPBgpPz
Significantly, Sajid Javid has also said he will review the UK’s fiscal framework.Significantly, Sajid Javid has also said he will review the UK’s fiscal framework.
That’s a strong hint that the government could tear up its current tax and spending rules, allowing it to borrow more.That’s a strong hint that the government could tear up its current tax and spending rules, allowing it to borrow more.
Javid says he will "review our fiscal framework to ensure it meets the economic priorities of today, not of a decade ago"- an acknowledgment that the fiscal rules as they stand will be broken soon?Javid says he will "review our fiscal framework to ensure it meets the economic priorities of today, not of a decade ago"- an acknowledgment that the fiscal rules as they stand will be broken soon?
Over in parliament, chancellor Sajid Javid is laying out the government’s spending plans for the next year.Over in parliament, chancellor Sajid Javid is laying out the government’s spending plans for the next year.
In between tickings off from the Speaker for deviating into political theatre, Javid has promised more than £13bn in new spending, on health, education, and infrastructure projects such as faster broadband networks.In between tickings off from the Speaker for deviating into political theatre, Javid has promised more than £13bn in new spending, on health, education, and infrastructure projects such as faster broadband networks.
The chancellor claims he’s not writing blank cheques, but he certainly seems to be loosening the fiscal purse strings -- taking advantage of current record low borrowing costs.The chancellor claims he’s not writing blank cheques, but he certainly seems to be loosening the fiscal purse strings -- taking advantage of current record low borrowing costs.
More details here:More details here:
Brexit: Sajid Javid unveils spending review as government reels from defeat in vote – live newsBrexit: Sajid Javid unveils spending review as government reels from defeat in vote – live news
And here:And here:
Spending review 2019: the chancellor's key points at a glanceSpending review 2019: the chancellor's key points at a glance
Cathal Kennedy of Royal Bank of Canada says today’s PMIs show “a picture of broad weakness” across the UK economy.Cathal Kennedy of Royal Bank of Canada says today’s PMIs show “a picture of broad weakness” across the UK economy.
He agrees that the data imply the economy is shrinking, but is hopeful that a recession could be avoided.He agrees that the data imply the economy is shrinking, but is hopeful that a recession could be avoided.
Kennedy says there are three reasons to be optimistic that the economy will return to growth this quarter, namely:Kennedy says there are three reasons to be optimistic that the economy will return to growth this quarter, namely:
with a number of car plants having brought forward their summer shutdowns, some of the ‘lost’ car production of 60k m/m seen in April should instead be pushed into August this year;with a number of car plants having brought forward their summer shutdowns, some of the ‘lost’ car production of 60k m/m seen in April should instead be pushed into August this year;
consumer spending remains relatively solid thanks to rising employment and wages and should support growth into Q3;consumer spending remains relatively solid thanks to rising employment and wages and should support growth into Q3;
the potential return of stockpiling by firms toward the end of the quarter ahead of the new Brexit date of 31 October (for contingency planning, while the odds of a no-deal Brexit appear to be receding, that possibility has not been removed entirely).the potential return of stockpiling by firms toward the end of the quarter ahead of the new Brexit date of 31 October (for contingency planning, while the odds of a no-deal Brexit appear to be receding, that possibility has not been removed entirely).
My colleague Richard Partington explains why August’s PMI reports are so worrying:My colleague Richard Partington explains why August’s PMI reports are so worrying:
Britain has taken a step closer to suffering its first recession since the financial crisis, according to a closely watched survey that showed the private sector failed to grow in August.Britain has taken a step closer to suffering its first recession since the financial crisis, according to a closely watched survey that showed the private sector failed to grow in August.
IHS Markit and the Chartered Institute of Procurement and Supply said the UK economy was on track to contract by 0.1% in the three months to September, as the growing likelihood of a no-deal Brexit serves as a handbrake on growth and damages business confidence across the country.IHS Markit and the Chartered Institute of Procurement and Supply said the UK economy was on track to contract by 0.1% in the three months to September, as the growing likelihood of a no-deal Brexit serves as a handbrake on growth and damages business confidence across the country.
The warning comes after the economy shrank in the three months to June, marking the first quarterly decline since 2012. Economists view two consecutive quarters of falling output as a technical recession.The warning comes after the economy shrank in the three months to June, marking the first quarterly decline since 2012. Economists view two consecutive quarters of falling output as a technical recession.
According to the survey, which is monitored by the government and the Bank of England for early warning signs from the economy, meagre growth in the service sector failed to offset sharp declines in manufacturing output and construction activity last month.According to the survey, which is monitored by the government and the Bank of England for early warning signs from the economy, meagre growth in the service sector failed to offset sharp declines in manufacturing output and construction activity last month.
Here’s his full story:Here’s his full story:
UK slips closer to recession as service sector slowsUK slips closer to recession as service sector slows
This chart, from Capital Economics, shows how the UK PMIs have deteriorated this year, as prolonged Brexit uncertainty hurt the economy.This chart, from Capital Economics, shows how the UK PMIs have deteriorated this year, as prolonged Brexit uncertainty hurt the economy.
As you can see, it shows the factory and construction sectors are both shrinking (with a PMI below 50) while the services sector is stalling.As you can see, it shows the factory and construction sectors are both shrinking (with a PMI below 50) while the services sector is stalling.
The pound has now risen over $1.22, up more than a cent today,The pound has now risen over $1.22, up more than a cent today,
This is sterling’s best day since 22 August, lifting the currency to its highest level this week.This is sterling’s best day since 22 August, lifting the currency to its highest level this week.
Traders are betting that the risk of a no-deal has receded, with the latest developments in Hong Kong also boosting sentiment.Traders are betting that the risk of a no-deal has receded, with the latest developments in Hong Kong also boosting sentiment.
Sterling consolidated higher on Boris Johnson losing immediate control of the #Brexit process, while risk sentiment has perked up strongly around the world on the Hong Kong leadership withdrawing the controversial extradition bill. >> https://t.co/iPnlAlSwY7 by @johnjhardy #FXSterling consolidated higher on Boris Johnson losing immediate control of the #Brexit process, while risk sentiment has perked up strongly around the world on the Hong Kong leadership withdrawing the controversial extradition bill. >> https://t.co/iPnlAlSwY7 by @johnjhardy #FX
BBC economics journalist Dharshini David suspects the weak PMI survey is showing the deep anxiety among UK businesses about Brexit.BBC economics journalist Dharshini David suspects the weak PMI survey is showing the deep anxiety among UK businesses about Brexit.
Weakness in PMI surveys may reflect sentiment rather than activity - in which case it may be a better proxy for investment action/ intentions (which has been key reason for underperformance if economy) than output - ie may not signify outright recessionWeakness in PMI surveys may reflect sentiment rather than activity - in which case it may be a better proxy for investment action/ intentions (which has been key reason for underperformance if economy) than output - ie may not signify outright recession
If so, that might not mean the economy actually falls into recession this autumn, but could still show that firms are too scared to invest (which will wound the economy down the line)If so, that might not mean the economy actually falls into recession this autumn, but could still show that firms are too scared to invest (which will wound the economy down the line)
With a recession looming, and the country’s government losing its majority, you’d expect to see the pound being pummelled today.With a recession looming, and the country’s government losing its majority, you’d expect to see the pound being pummelled today.
But actually, sterling is rallying. It just hit $1.219 against the US dollar, its highest point of the day, up a cent.But actually, sterling is rallying. It just hit $1.219 against the US dollar, its highest point of the day, up a cent.
That means it’s gained two cents since its slump yesterday morning, when fears of a No Deal Brexit swept the City.That means it’s gained two cents since its slump yesterday morning, when fears of a No Deal Brexit swept the City.
Sterling still going, now +0.42% against other currencies#GBPUSD 1.21726 +0.74%#EURGBP 0.90481 -0.36%#GBPAUD 1.79307 +0.29%#GBPJPY 129.267 +0.98%#GBPCAD 1.62092 +0.59%#GBPCHF 1.19914 +0.54%#GBPEUR 1.1052 +0.36%Sterling still going, now +0.42% against other currencies#GBPUSD 1.21726 +0.74%#EURGBP 0.90481 -0.36%#GBPAUD 1.79307 +0.29%#GBPJPY 129.267 +0.98%#GBPCAD 1.62092 +0.59%#GBPCHF 1.19914 +0.54%#GBPEUR 1.1052 +0.36%
The recovery comes as MPs prepare to vote on legislation that would force the government to seek a new Brexit extension beyond 31 October if a deal isn’t agreed in time.The recovery comes as MPs prepare to vote on legislation that would force the government to seek a new Brexit extension beyond 31 October if a deal isn’t agreed in time.
Opposition MPs are making it clear that they won’t give Boris Johnson the two-thirds majority he needs for an early election, unless No Deal is off the table.Opposition MPs are making it clear that they won’t give Boris Johnson the two-thirds majority he needs for an early election, unless No Deal is off the table.
Andy Sparrow’s Politics Live blog has all the action:Andy Sparrow’s Politics Live blog has all the action:
Brexit row: Ruth Davidson joins backlash against decision to remove whip from 21 Tory rebels – live newsBrexit row: Ruth Davidson joins backlash against decision to remove whip from 21 Tory rebels – live news