Market expectations of a no-deal Brexit have increased over the last few months, Bank of England (BoE) governor Mark Carney warned today.
The uncertainty surrounding the UK’s future relationship with the European Union is having a greater impact on businesses than before the original Brexit deadline date of 29 March.
“Market expectations of no deal have gone up in recent months. There has been a notable increase,” Carney told the treasury select committee during an evidence session on the BoE’s inflation report.
“The degree of uncertainty [for businesses] is as high as it was just prior to the 29 March deadline. If you squint marginally it’s gone up a bit.
“As best as I can tell, this uncertainty effect that has been weighing on business, and particularly business investment, is continuing to operate.
“Expectations of no deal have gone up in markets, that uncertainty is still there for business and that is affecting the short term economic performance.”
Carney added that the BoE would only factor a no-deal Brexit into its economic forecasts if the next prime minister announces plans to leave the EU without an agreement.
He said that both Conservative Party leadership candidates – Boris Johnson and Jeremy Hunt – had said it was preferable to reach a deal with the EU if possible.
“In the event that the policy of the government were to switch, the forecast of the Bank of England would switch accordingly,” he said.