House prices plummeting 31 per cent. Unemployment shooting up to 9.5 per cent. GDP collapsing by 4.3 per cent amid a sharp recession.
These were the scenarios the Bank of England used to conduct its mandated “stress test” for some of the UK’s biggest financial companies back in 2016.
Last year, the wonks at Threadneedle Street again measured banks’ ability to cope with a doomsday scenario – a 33 per cent drop in house prices, higher interest rates, a near-double-digit unemployment rate, all in the event of a “sharp, disorderly” Brexit.
So, given that the Bank of England produces such stress tests annually, and that it has previously tested against bad-case Brexits, why did yesterday’s figures trigger such a frenzy in Westminster and beyond?
Upon publishing the analyses, governor Mark Carney was at pains to avoid such a reaction.
“Let me begin by stressing what these analyses are and what they are not. These are scenarios not forecasts. They illustrate what could happen – not necessarily what is most likely to happen,” he said.
Haunted by accusations that the Bank contributes to so-called “project fear” – an alleged effort by the establishment to deter people from supporting Brexit, or specifically a hard Brexit – Carney added: “The no deal scenario is to provide reassurance, it’s not supposed to make people scared. It’s to provide reassurance that even if this happens, which is unlikely, the system is more than ready.”
Unfortunately for Carney, his attempt to head off any hysteria was like shouting “FIRE” in a crowded theatre and then wondering why nobody could hear you say “it's only a drill” amid the ensuing panic and stampede.
The Bank, in fairness, was tasked with producing yesterday’s Brexit analysis by a committee of senior MPs. It was also cornered into publishing them earlier than originally planned, thanks to the committee’s own schedule and Theresa May’s crunch vote on her Brexit plan.
Plenty of people who should know better seized on the Bank's statement yesterday, forgetting (perhaps deliberately) that the armageddon scenario is emphatically not a forecast – and was is in fact a lurid hypothesis against which to test banks' resilience. For Carney's critics yesterday's performance confirms their suspicion that he's a Remain stooge, but though such a characterisation is inaccurate and unfair there's no denying that Brexit has made the Bank a political actor. That's a risk that ought to be subject to its own stress testing.