Bank of England governor Mark Carney today warned that a trade war could “shipwreck” the global economy.
Speaking in Bournemouth today Carney said financial markets had recently experienced a “profound transformation” driven by growing concerns over the impact of rising trade tensions and policy uncertainty.
However, he added that a global trade war and a no-deal Brexit were possibilities but not yet certainties.
He said: “As I have sought to illustrate, whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.”
Carney’s comments come days after US president Donald Trump and his Chinese counterpart Xi Jinping agreed a trade war truce and announced the world’s two largest economies would reopen negotiations.
“The news at the weekend that the US and China agreed to restart trade talks is welcome – through as we have learned, progress today is no guarantee of progress tomorrow,” the central bank governor added.
Meanwhile chancellor Philip Hammond has warned that a no-deal Brexit could cost the UK up to £90bn.
The chancellor has been in dispute with Conservative Party leadership hopefuls Jeremy Hunt and Boris Johnson over the true cost to the UK of leaving the EU without a deal in place.
Both candidates have indicated they would boost spending and introduce tax cuts, while also saying they are prepared to leave the EU without a transition deal.
Hammond insisted that there is no “pot of money” to allocate towards tax cuts or additional spending.
In the event of a no-deal Brexit, the £26bn “fiscal headroom” would need to be funnelled towards dealing with the economic disruption, he said.
“I have no doubt whatsoever that in a no-deal Brexit we will need all of that money and more to respond to the immediate impacts of the disruption of a no-deal Brexit,” he told MPs.
“And that will mean there is no money available for longer-term either tax cuts or spending increases.”