Bank of England governor Mark Carney today warned of “pain” for the British economy in the case of a hard Brexit, with no transition or longer-term trade deal secured between the UK and the EU on trade.
Speaking at the Bank’s stress tests of the financial system, Carney said UK banks would be able to withstand even the most disorderly Brexit process without stopping lending to the economy, but he reiterated his plea for negotiators to avoid that situation.
Carney called for a transition period for financial services firms of between 18 months and two years, adding that the latter was a “good estimate” of what banks need.
The process of reorienting financial services trade between the UK and the EU would be made “considerably easier by a material transition period”, he said. “We’re looking to catalyst that action,” he added.
Meanwhile, a “no deal” Brexit scenario would cause an “economic impact on households and businesses”, Carney said.
“There will be some pain associated with that,” he added. “This is about minimising that, and dampening that.”
While a disorderly Brexit on its own would not derail the global financial system, a simultaneous global recession could create “more severe conditions than in the stress test”, the Bank’s financial policy committee warned today.
The Bank of England has made it increasingly clear over the past year that it believes, in line with the vast majority of economists, that a worst case “no deal” scenario would cause a significant decline in economic activity.
Deputy governor Sam Woods has made the most explicit comments urging regulators to agree transitional arrangements by Christmas. After that point firms will start implementing contingency plans, likely involving moving jobs out of the UK.
According to banking data from Statista, these are the biggest risks facing the UK: