Mark Carney threw himself back into the thick of the Brexit debate on Friday, saying the chance of the U.K. dropping out of the European Union without a deal is “uncomfortably high.”
The intervention suggests the Bank of England governor is growing increasingly worried that Prime Minister Theresa May’s government is running out of time to hammer out an agreement that will prevent disruption to business, trade and consumers. The central bank has previously drawn criticism for being too forthright in its comments and predictions surrounding Brexit, which anti-EU lawmakers see as being overly gloomy.
In a BBC Radio interview on Friday, Carney said a disorderly Brexit is “highly undesirable.” The pound weakened below $1.30 as he spoke and was down 0.3 percent at $1.2982 as of 8:56 a.m. London time.
Carney also said that a no-deal Brexit is “a relatively unlikely possibility, but still a possibility.”
Even with the chance of a disorderly departure from the EU mounting, BOE officials voted unanimously to hike interest rates to 0.75 percent on Thursday. In a press conference following the decision, Carney said that officials “can’t be handicapped or tied by the range of Brexit possibilities.”
Britain is set to leave the EU in March 2019, just months before Carney’s term as governor ends. Options ranging from the U.K. retaining some access to the single market to trading under World Trade Organization rules are still on the table — and it’s still not clear whether there will be a smooth transition to any new arrangement.
“It’s absolutely in the interests of the EU and the U.K. to have a transition,” Carney said Friday. No deal is “highly undesirable. Parties should do all things to avoid it.”
Carney laid out potential monetary policy reactions to various Brexit outcomes in a speech in May, saying that if there was a disorderly transition, the MPC would probably have to manage another “trade-off” between growth and inflation, as it did after the referendum. Back then, it cut interest rates and restarted QE.
“There is a very broad range of outcomes,” he said on Friday. “For a number of those outcomes, rates should be around current levels or potentially higher. There are other scenarios where interest rates may have to be cut,” and the bank can respond as needed.
In a sign of the pressure on May, she cut short a holiday to meet with French President Emmanuel Macron on Friday. It’s part of her diplomatic drive to win European leaders over with just 11 weeks until a divorce accord is meant to be signed.
–With assistance from Andrew Atkinson and Zoe Schneeweis
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