Bank of England Governor Mark Carney yesterday threw himself back into the thick of the Brexit debate, saying the chance of the UK dropping out of the EU without a deal was “uncomfortably high.”
The intervention suggests that the Carney is growing increasingly worried that British Prime Minister Theresa May’s government is running out of time to hammer out an agreement that would prevent disruption to business, trade and consumers.
The central bank has previously drawn criticism for being too forthright in its comments and predictions surrounding Brexit, which anti-EU lawmakers see as being overly gloomy.
In a BBC Radio interview, Carney said a disorderly Brexit was “highly undesirable.”
The British pound weakened below US$1.30 as he spoke and was down 0.3 percent at US$1.2982 as of 8:56am London time.
Carney also said that a no-deal Brexit is “a relatively unlikely possibility, but still a possibility.”
Even with the chance of a disorderly departure from the EU mounting, Bank of England officials on Thursday voted unanimously to hike interest rates to 0.75 percent.
In a press conference following the decision, Carney said that officials “can’t be handicapped or tied by the range of Brexit possibilities.”
Britain is set to leave the EU in March next year, just months before Carney’s term as governor ends.
Options ranging from the UK retaining some access to the single market to trading under WTO rules are still on the table — and it is still not clear whether there would be a smooth transition to any new arrangement.
“It’s absolutely in the interests of the EU and the UK to have a transition,” Carney said yesterday, adding that no deal is “highly undesirable. Parties should do all things to avoid it.”
Carney laid out potential monetary policy reactions to various Brexit outcomes in a speech in May, saying that if there was a disorderly transition, the Monetary Policy Committee would probably have to manage another “trade-off” between growth and inflation, as it did after the referendum.
Back then, it cut interest rates and restarted quantitative easing.
“There is a very broad range of outcomes,” he said yesterday. “For a number of those outcomes, rates should be around current levels or potentially higher. There are other scenarios where interest rates may have to be cut,” and the bank would respond as needed.
In a sign of the pressure on May, she cut short a holiday to meet with French President Emmanuel Macron yesterday.
The trip was to be part of her diplomatic drive to win European leaders over with only 11 weeks until a divorce accord is meant to be signed.
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