LONDON (Reuters) - Bank of England Governor Mark Carney and other top officials from the central bank spoke in parliament on Tuesday about the BoE’s Inflation Report which was published in May.
CARNEY ON NO-DEAL BREXIT
The path of interest rates, in the markets judgment, is lower because they are ascribing some possibility to no-deal. And in the event of no-deal, that interest rates would be lower than they otherwise would be.
The markets to the best of our knowledge, our analysis, are not saying at this point that no deal is the most likely scenario.
The market assessment is that it is more likely that there is some sort of path to some sort of deal than not; that could change, and asset prices will change accordingly.
In the event that the policy of the government were to switch, the forecast of the Bank of England would switch accordingly.
In the event that there is no deal, the response would not be automatic, it would depend on demand, on supply and where the exchange rate went.
On one level, just simple tariff analysis of the trade measures lead to notable but not that material impacts on, certainly, the affected economy and relatively marginal impacts on the global economy and the UK economy, so what really matters to us is the amplification channels through, particularly, business confidence that can be most pernicious.
There is a somewhat limited ability of monetary policy to offset that. We’ve seen sharper moves in monetary policy’s expectations in markets, but one has to temper the expectations about how much those policy changes could actually address great uncertainty effects on business.
I don’t think monetary policy is being politicized in the UK, I’ll state that.
If one is asked, can you have no-deal and Gatt 24?
There needs to be some form of agreement and an intention, a credible intention to move toward a free trade (deal) or customs union.
Market expectations of no deal have gone up in recent months. There has been a notable increase.
The degree of uncertainty (for businesses) is as high as it was just prior to the March 29 deadline. If you squint marginally it’s gone up a bit.
As best as I can tell, this uncertainty effect that has been weighing on business, and particularly business investment, is continuing to operate.
Expectations of no deal have gone up in markets, that uncertainty is still there for business and that is affecting the short term economic performance.
A series of rolling deadlines would probably imply a heightened uncertainty and have a greater adverse affect on growth.
Now that is not a reason to do the things that business fear..., but the outlook for the economy would be very different if you knew now that there was going to be a smooth Brexit compared to one where you have a rolling series of deadlines and at each point there is the risk of a no-deal Brexit.
Reporting by Kate Holton and Katya Sanigar