Risk of no deal Brexit 'uncomfortably high', Bank of England governor admits
Risk of no deal Brexit 'uncomfortably high', Bank of England governor admits
The Bank of England’s monetary policy committee appears almost certain to raise interest rates this weekYUI MOK PA
03 August, 2018, 17:09
"GBP is trading lower on Carney "no deal" Brexit scenario it appears", says Neil Jones with Mizuho Bank Ltd. The Pound-to-Dollar exchange rate has hit a low at 1.2982 confirming fresh 2018 lows are on the cards in the near-term.
The banks have been tested to ensure they have enough capital to cope with a scenario of a 4.7% fall in UK GDP, a 33% fall in house prices, interest rates rising to 4%, unemployment rising to above 9% and the pound falling further.
"I think the possibility of a no deal is uncomfortably high at this point", Carney said in an interview with BBC radio.
The Bank of England has increased interest rates to their highest level for almost 10 years after the summer heatwave helped the economy bounce back from a snow-hit start to the year.
Mr Carney said: "We have been planning for very hard circumstances and the banks are ready".
"Parties should do all things" to avoid the United Kingdom leaving the European Union without a deal.
"Parties should do all things to avoid (a no deal Brexit)", Carney said.
After Thursday's interest rate rise, interest rates stand at 0.75%, unemployment is forecast to fall below 4% and the United Kingdom economy expected to grow faster than the 0.2% in the first quarter of the year.
But it also said inflation - now running at 2.4% - was set to rise slightly higher than it had predicted in May's set of forecasts after recent falls in the value of the pound and higher energy prices.
However, the financial system was robust and could withstand shocks.
Carney said consumer prices would likely rise in the case of a no-deal Brexit as companies enacted contingency plans to keep supply chains operating.
"The financial system will be ready", he said, so that people would not have to worry about about their money in the bank and be able to get loans.
Last night saw the Bank of England (BOE) raise its benchmark interest rates to 0.75%, the highest since the bowels of the GFC in 2009.
The BoE said Britain's economy, while growing more slowly than in the past ahead of Brexit, was operating at nearly its "speed limit", or full capacity, raising the prospect of more home-grown inflation pressure ahead.
It also fleshed out its thinking on how far it is likely to go with its planned rate hikes by publishing a new long-term forecast for what it called Britain's trend real interest rate, or "R*", of zero to 1 percent, more than 2 percentage points below its pre-financial crisis level.
"We've already done the stockpiling", he said. That compares with the long-term average of 5%.
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