There is a “significant possibility” of a no-deal Brexit that will leave Britons paying more for food and gasoline, Bank of England Governor Mark Carney said yesterday.
During a BBC Radio interview, Carney said that while the central bank would do everything it could to support the economy if the UK leaves the EU without a deal, such an outcome would be inflationary.
While a probable drop in the British pound would help the economy adjust, that would drive up prices in supermarkets and at gas stations, he said.
“This is straight economics,” Carney said.
The exchange rate “adjusts to what is a real economic shock — the change in trading relationship means that incomes would be lower here relative to what they otherwise would have been, for a period of time,” he said. “It may take a while to get to the sunlit uplands.”
The British pound has tumbled, last month completing its worst monthly performance in almost three years as new British Prime Minister Boris Johnson’s rise to power boosted concerns over a no-deal Brexit.
Johnson has repeatedly said he will take the UK out of the EU on Oct. 31, with or without a deal, and the government has doubled spending on no-deal preparations.
Carney said that the Bank of England’s policy response to a no-deal Brexit would not be automatic and there are limits to the institution’s ability to accept inflation.
Speaking on Thursday after the publication of the bank’s Inflation Report, Carney said that the bank cannot necessarily deliver a growth-boosting package in the event of Brexit without a transition.
In the radio interview, Carney said it was still “more likely than not” that the UK would leave with a deal and that, under forecasts based on such an outcome, the economy “really picks up” in the coming years.
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