Mark Carney has warned that the possibility of a no-deal Brexit is “uncomfortably high” and will lead to higher prices, as Theresa May prepares to meet the French president, Emmanuel Macron, for talks.
The Bank of England governor said both the UK and EU should “do all things to avoid” a no-deal scenario. He added that the banks had done the “stockpiling” and the country’s financial system was in a position to be able to withstand a shock that could result from the UK leaving the EU without an agreement.
His remarks led to sterling falling sharply to just under $1.30.
Carney told BBC Radio 4’s Today programme: “I think the possibility of a no-deal is uncomfortably high at this point.”
Asked if no deal would be a disaster, he said: “It is highly undesirable. Parties should do all things to avoid it.”
Pushed on what no deal would mean, he said “disruption to trade as we know it”, before adding: “As a consequence of that, a disruption to the level of economic activity, higher prices for a period of time.
“Our job at the Bank of England is to make sure those issues don’t happen in the financial system, so that people will have things to worry about in a no-deal Brexit, which is still a relatively unlikely possibility but it is a possibility, but what we don’t want to have is people worrying about their money in the bank, whether or not they can get a loan from the bank – whether for a mortgage or for a business idea – and we have put the banks through the wringer well in advance of this to make sure they have the capital.”
But he insisted stress tests ordered by the Bank had ensured that Britain’s financial institutions, which have tripled their capital and increased their liquidity by 10 times, would be able to cope.
“The reason they have done that is to be in the position to be able to withstand a shock, wherever the shock comes from. It could come from China; it could come from abroad; it could come from a no-deal Brexit.”
May will meet Macron at his summer retreat, Fort de Brégançon, on a small island off the French Mediterranean coast, on Friday evening. After the talks, she and her husband, Philip, will join Macron and his wife, Brigitte, for a private dinner.
May is ending her break in the Italian Lakes a day early in the hope of winning over the French leader, one of Europe’s key powerbrokers, although she will fly off to Switzerland for a second break later this month.
Warnings about a potential collapse in talks between the EU and the UK government have been escalating in recent days. During a trip to Austria on Wednesday, the foreign secretary, Jeremy Hunt, said the process was “heading for no deal by accident”.
Earlier, Gen Sir Nick Carter, the new head of the armed forces, was asked about reports the army was being put on standby for a no-deal Brexit – a situation in which troops could help deliver food, medicines and fuel.
“There hasn’t been any request yet as far as I’m aware,” he said
