LONDON (Reuters) - The Bank of England would likely reconsider its assumption of a “smooth” transition to Brexit if a breakdown in talks between London and Brussels causes big shifts in financial markets and economic indicators, rate-setter Gertjan Vlieghe said.
Vlieghe said the Bank would watch surveys of businesses and households for big moves if expectations of a disorderly exit from the European Union became widespread.
“And that might be the kind of material change that we’d (need to see to) say our assumption that ... a smooth transition is clearly not tenable any more,” Vlieghe told a panel of MPs on Tuesday.
The Bank raised interest rates earlier this month and said a smooth transition to Britain’s new trade relationship with the EU remained one of its assumptions for the economic outlook.
Vlieghe said there was a degree of pessimism in financial markets about the outcome of the negotiations, citing last month’s Reuters poll of economists that showed a median 30 percent chance of a disorderly Brexit.
BoE Deputy Governor Jon Cunliffe, appearing alongside Vlieghe, said Britain would need to refocus parts of its economy that are dependent on trade with the EU if it fails to agree a good deal with the bloc.
He shared Vlieghe’s view that the Bank would need to wait to see how consumers and businesses react to the Brexit process, rather than make its own predictions.
Reporting by Andy Bruce; Editing by William Schomberg