Bank of England Downgrades No Deal Project Fear Predictions by Half

LONDON - UNITED KINGDOM - JULY 01: Mark Carney, governor of the Bank Of England, attends a
Jason Alden - Pool/Getty
Victoria Friedman

Mark Carney has revised down predictions on the economic ‘disruption’ of a no-deal Brexit by half, after the Bank of England governor had been criticised for his “misleading” November predictions.

At the end of last year, Mr Carney’s office predicted that the UK economy could be between 4.47 and 7.75 per cent smaller within three years of a clean Brexit as opposed to following Prime Minister Theresa May’s soft exit plan.

The central bank chief told the Lords Economic Affairs Committee on Tuesday that those predictions, in light of recent preparations for a WTO exit, could be as low as two per cent.

However, both models were based on there being a market crash, a collapse in sterling, and significant border friction — a possibility ruled out on multiple occasions by Calais’s port chiefs and Britain’s tax office — on March 29th.

“There has been progress in preparedness and that reduces the level of the economic shock,” Mr Carney told the committee, according to The Sun.

“If you took the scenarios that we had for a no-deal Brexit and you referenced the disruptive and the disorderly, and it depends what your counterfactual is — so what are we comparing it to — if we compare those as we did in November to our forecast of the economy at the time which presumed something broadly consistent with the Prime Minister’s deal… the potential hit to GDP was just under 5% in the disruptive and just under 8% in the disorderly.

“The items I indicated earlier, given our modelling of the situation, would pull back somewhere between 2% to 3.5% of those losses depending on the scenario,” he added.

Mr Carney was criticised for allegedly inflating the risk of economic ‘damage’ that a clean Brexit would cause after previously unreleased staff minutes from the Bank of England revealed concern that the predictions could be “against [the] public interest” by giving “a suggestion of apparently precise scenarios [which] could be misleading and liable to misinterpretation.”

While the Tory government is attempting to convince the intransigent EU to accept changes to the Withdrawal Agreement’s Irish backstop and the prime minister has opened up the possibility of taking no-deal off the table or even delaying Brexit, a group of senior academics and former head of MI6 Sir Richard Dearlove have come out in support of the “immediate opportunities” that a World Trade Organization (WTO) exit would bring.

Writing a joint letter in The Telegraph, the signatories said that while a WTO exit would require “adjustments”, “it would allow us to cut unnecessary tariffs, reduce costly regulation, save on budget contributions and sign beneficial trade deals.

“The Government should propose a binding undertaking to begin free‑trade negotiations after leaving, and in the meantime accept side deals already offered by the EU. If this offer is refused, we should leave with side deals alone and with no transition period: ‘WTO Plus,’” they added.

The support for a no-deal and the resulting slash in tariffs come after reports the government is considering cutting 80 to 90 per cent of trade tariffs in the result of a no-deal Brexit, while government sources told Sky News said the remaining 10 to 20 per cent, related to cars, some textiles, and beef, dairy, and lamb, will be maintained. The plans, believed to have been approved by the Cabinet, are intended to stop rising prices in shops for British consumers.

Germany’s industry chief Dieter Kempf also warned Tuesday against a delay to Brexit, saying an “economy can live better with bad conditions than with uncertainty.”

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