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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) | |
Some more highlights from Mark Carney today: | |
Favourite Carney stat this afternoon: Every 5% of normal Customs capacity that gets through Dover equates to around 0.25% of GDP @bankofengland | |
Mark Carney explaining the taxonomy of economic "shocks": "They call it the dismal science for a reason" | |
BoE Governor Carney says UK economy is softer than i would have expected a few months ago $GBP | |
Q: The UK economy shrank 0.2% in the second quarter of 2019, so do you agree with the government that the economy is “fundamentally strong”? | |
Mark Carney says that Q2 was probably less weak than the headline data suggests, as Brexit stockpiling dragged some activity forwards into Q1. | |
But he’s not jubilant, warning that “the underlying pace of growth is weak”,and just above zero. | |
More positively, the labour market is tight with record low unemployment, but real wages have only turned positive (with earnings outpacing inflation). | |
Q: What would a no-deal Brexit mean for food bills? | |
It is likely that food bills will rise, overwhelmingly because the pound would fall and push up import prices, Mark Carney replies. | |
Domestically-produced food prices would also rise, in line with pricier exports, he adds. | |
He repeats his earlier point that tariffs would have a limited impact on food prices, as the government’s “temporary tariff regime” doesn’t include significant increases. | |
Whatever form Brexit takes, it will mean a “material change” to the UK’s trading relationships, Mark Carney tells the Treasury committee. | |
Every major trade deal in recent decades has taken at least 18 months, some took four years, he points out. That’s why the BoE favours a transition period, to help companies adjust. | |
Q: Would the impact of Brexit be worse if it happened just before or after a general election? | Q: Would the impact of Brexit be worse if it happened just before or after a general election? |
“Pass “ smiles Mark Carney. | “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? | 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. | 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. | 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. | 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 : | 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. | 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. | 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? | 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. | 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). | 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. | 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?.... | 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. | The appointment of a new governor is a matter for the government, Carney replies. |
Q: Has the Brexit crisis made the governorship less appealing? | Q: Has the Brexit crisis made the governorship less appealing? |
MPC member Jonathan Haskell says not - it’s just part of the job. | 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... | 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. |