There is a "significant possibility" of a no-deal Brexit that will leave people in Britain paying more for food and petrol, according to Bank of England governor Mark Carney.
In a BBC Radio interview on Friday, Mr Carney said that while the Bank of England 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 pound would help the economy adjust, that would drive up prices in supermarkets and petrol stations.
“This is straight economics,” Mr 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.”
“It may take a while to get to the sun-lit uplands,” he added.
Sterling has tumbled in recent weeks, completing its worst monthly performance in almost three years in July, as new prime minister Boris Johnson’s rise to power boosted concerns over a no-deal Brexit.
Mr Johnson has repeatedly said he will take the UK out of the EU on October 31st, with or without a deal, and the government has doubled spending on no-deal preparations.
Mr Carney reiterated on Friday that the Bank of England’s policy response to a no-deal Brexit would not be automatic, and there were limits to the institution’s ability to accept inflation. Speaking after the publication of the bank’s Inflation Report on Thursday, the governor indicated that the Bank of England could not necessarily deliver a growth-boosting package in the event of Brexit without a transition.
Forecasts
In the radio interview Mr Carney said it was still “more likely than not” that the UK would leave with a deal, and that under the Bank of England’s forecasts based on such an outcome the economy “really picks up” in coming years.
The governor’s comments came a day after the leak of a UK government document warning that a no-deal Brexit could cause cross-Border agriculture trade in the North to “virtually stop” within 24 hours.
The document also said a no-deal Brexit could trigger “consumer panic”, food shortages and an increased security threat within a fortnight.
The slide, prepared for British ministers and obtained by Sky News, said sterling could fall in the first month, while Northern Ireland may face law and order challenges. – Bloomberg/PA
