Less than eight months to go before the UK is scheduled to leave the EU and the government has still not reached a deal with Brussels, raising the possibility of the country leaving the bloc without any formal agreement.
In an interview with the UK's BBC radio, Mark Carney, governor of the Bank of England (BoE), says that a no deal, with regards to Brexit negotiations, is “highly undesirable”.
He strongly encourages Theresa May and EU leaders to “do all things to avoid it”.
He then continued that “the possibility of a no deal is uncomfortably high at this point”.
He emphasised that Brexit negotiations enter a “critical phase”, warning that for no agreement with Brussels would result in the “disruption to trade as we know it”.
One consequence of a no deal, he suggests, is a “disruption to the level of economic activity, higher prices for a period of time”.
He then made unequivocally clear that “there are a wide range of Brexit outcomes but in many of them, interest rates will be at least as high as they are today”.
BoE’s efforts to reduce the damage of a possible no deal Brexit
In the same interview, Carney said that there were a range of well thought-through and pragmatic plans to ensure that banks are prepared for a no deal in March and equally for a no deal at the end of the transition.
“Our job in the Bank of England is to make sure that those things don’t happen,” he said, commenting on the impact of Brexit on interest rates and trade “it’s relatively unlikely but it is a possibility. We don’t want to have people worrying that they can’t get their money out.”
“We’ve put the banks through the wringer to make sure that they have the capital. Whatever the shock could happen from - it could come from a no deal Brexit - we’ve gone through all the risks of a no deal Brexit.”
He revealed a stress test that had been carried out to perpetuate the avoidance of the collapse of banks even in the scenario in which falling house prices, rising interest rates and huge unemployment all happened at once.
He stated that borrowing costs will not rise sharply in the next couple of years, placing emphasis on the fact that monetary policy needs to ‘walk’ and ‘not run to stand still’.
