Mark Carney has said the impact of a no-deal Brexit would be less severe than first thought, saying that preparations for a disorderly departure had helped to reduce the likely hit to the UK economy.
Although maintaining “material risks” to the economy remained, reiterating that crashing out of the EU on 31 October was likely to have a negative impact, the governor of the Bank of England said “real progress” had been made since November last year.
Speaking to MPs on the Commons Treasury committee, he said: “There is real progress on the ground, there is real progress in the financial system, and that has some positive knock-on effect on confidence and financial markets as a whole.”
The Bank warned last November that a disorderly Brexit could wipe about 8% off GDP through a recession worse than the financial crisis, under its worst-case scenario for the impact of a no-deal Brexit.
However, Carney said the central bank now estimated GDP would decline by about 5.5% – still a sizeable economic shock, but a less damaging one. Joblessness would rapidly increase, taking the unemployment rate to more than twice its current level, at about 7%. Inflation would also more than double to 5.5%.
In a letter to the Treasury committee, published on Wednesday, Carney said plans by governments and companies on both sides of the Channel had helped to lower the dangers to the economy.
He said preparations at the border in France had been completed by port authorities in Calais, while the UK government had also taken several steps to lower the chance of border disruption.
Boris Johnson repeatedly criticised Theresa May and Philip Hammond for not taking sufficient steps to prepare the country for a no-deal Brexit. However, the Bank’s governor pointed to several developments completed earlier this year, including a simplified procedure for customs checks and the publication of an emergency UK tariffs regime for EU imports.
Carney said “the impact of that has been to reduce, in our judgement, the worst-case scenario”, but added: “There is more preparation that can be done.”
Carney has previously suggested efforts to limit the impact of a no-deal Brexit would help cushion the blow to the economy, saying in March that preparations would help to pull back some of the losses in economic output.
Answering questions on Wednesday, the governor suggested he would not intervene in the currency markets to protect the value of sterling under a no-deal Brexit. The pound has slumped in recent weeks, close to the lowest levels in 34 years.
He said: “I would underscore that we never have done it. I can’t see a circumstance that we would intervene, either for market functioning purposes – never say never on that – but I would at least on a personal basis say never for monetary policy reasons.”