A no-deal Brexit could leave Britain facing a financial crisis on the scale of the 2008 bust, the Bank of England governor has warned.
Addressing Theresa May’s cabinet, Mark Carney “painted a bleak economic picture” of unemployment rates in double figures, house prices dropping by a third over three years, and stalled transport links with the EU, reports The Guardian.
The PM “had intended her three-and-a-half-hour cabinet meeting to review no-deal contingency plans and to send a signal to the EU that Britain was prepared for the prospect of Brexit talks failing”, says the Financial Times.
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Instead, Carney and Chancellor Philip Hammond “joined forces to deliver a blow-by-blow account of why such a scenario would be economically damaging and that there would be little the Bank of England or Treasury could do about it”, the newspaper continues.
Several sources told The Guardian that Carney had compared the outcome of a no-deal Brexit with the fallout from the 2008 crash.
One cabinet minister told the paper: “The Government wouldn’t just stand by. It didn’t in 2008. He wasn’t saying it was all going to happen but I think there is a recognition that you do have to contemplate the worst-case scenario.”
Despite his dire predictions, “multiple sources reported that the Cabinet Brexiteers did not challenge Carney at all as he made his speech”, adds Politico’s Jack Blanchard.
Indeed, The Times reports that Vote Leave campaigner Andrea Leadsom noted that a housing crash would hit older voters - a demographic group that had favoured Leave.
An insider told the paper: “Carney was very spicy. You saw a few eyebrows going up around the room but nobody challenged him.”
What did Carney say?
As the FT notes, one of his “most stunning warnings” was that house prices could fall as much by as 35% over three years.
The property crash would be driven by rising unemployment, depressed economic growth, higher inflation and higher interest rates, Carney said.
But he did give May’s position a slight boost by adding that if she were able to strike a Brexit deal based on her beleaguered Chequers plan, the economy “would outperform current forecasts, because it would be better than the bank’s assumed outcome”, says the FT.
Could another slump be prevented?
Carney told ministers that in the scenario of a no-deal Brexit, the Bank of England would not be able to avert a crisis by cutting interest rates - as it did after the 2016 referendum vote - and that inflation and unemployment would rise.
Hammond added that the Treasury would also be constrained in its ability to tackle the crisis by boosting spending, noting that the country was still recovering from the aftermath of the 2008 crash.
As the two financial leaders were delivering their “brutal assessment of economic meltdown”, the Government was releasing “a flurry of dull-as-ditchwater papers suggesting the main impact of a no-deal Brexit would be yards and yards of extra red tape in everyday life”, Politico’s Blanchard reports.
How likely is no deal?
According to a Downing Street spokesperson, there is agreement within the Cabinet that a no deal outcome is “unlikely but possible”.
However, The Daily Telegraph’s Peter Foster disagrees, tweeting that the scenario is “more likely than you might think”.
Meanwhile, EU officials told The Guardian that the special November summit of EU leaders would probably be a “solemn event with set-piece speeches in which the UK would be offered ‘a warm goodbye’, rather than a last-minute scramble to seal the terms of a deal”.
