By David Milliken and Andy Bruce
LONDON (Reuters) – Bank of England Governor Mark Carney said on Tuesday Britain should be under no illusions about the likely shock to its economy if it leaves the European Union next month without a transition deal to ease the shock.
The United Kingdom is on course to leave the European Union on March 29 without a deal unless Prime Minister Theresa May can convince the bloc to amend the deal she agreed in November and then sell it to skeptical British lawmakers.
“You have got to recognize this could go quite badly. We are 45 days before the possibility of it,” Carney said, answering audience questions after a speech at a Financial Times event.
“We shouldn’t be under any illusions — I’m not going to put a point estimate on it — but a no-deal, no-transition Brexit would be an economic shock for this economy.”
A no-deal Brexit would “certainly” deliver a hit in the short term to Britain’s economy, Carney said, adding that a weaker currency would not solve its problems.
Asked by a Brexit-supporting lawmaker about the possibility of a weaker pound helping to absorb the no-deal Brexit economic shock, Carney said: “That’s part of the necessary adjustment mechanism but it is not a step to prosperity, it is a hit to income.”
Carney, a Canadian, has previously warned of the risks that Brexit poses to the United Kingdom, the world’s fifth-biggest economy, earning him the ire of some anti-EU lawmakers.
Last year, the BoE said a worst-case scenario for Britain’s departure from the bloc could be more damaging to the country than the global financial crisis a decade ago.
Carney said data published on Monday that showed a sharp slowdown in Britain’s economy in late 2018 were consistent with the BoE’s forecasts, and that the figures underscored the need for clarity around Brexit.
Most of Carney’s speech focused on the outlook for the global economy. He said growth was likely to stabilize at a new, slower pace – although China, trade wars and rising protectionism threatened the “delicate equilibrium”.
Britain, which has suffered sharp falls in business investment amid uncertainty around Brexit, could be seen as a “leading indicator” of a reversal of globalization.
If that uncertainty took hold elsewhere in the global economy, it could undermine its expansion, Carney said.
Rising debt in China was also a “significant and growing” risk to the global outlook for growth.
“(China) are not going to bail us out this time, I absolutely agree,” Carney said when asked about the ability of the world’s second-biggest economy to compensate for a slowdown in richer nations.
But the most likely outcome was that the world economy would not slow much further, he said.
“While there are pockets of risk and global growth is still decelerating, the combination of the policy response and the state of the current imbalances in advanced economies suggest that global growth is more likely than not to stabilize eventually around its new, modest trend,” Carney said.
He also took a swipe at the new, more protectionist policies of the United States, saying “it isn’t easy to win a trade war” – a reference to remarks made by U.S. President Donald Trump last year that trade wars were “good, and easy to win”.