Bank of England No Deal Brexit Less Severe Than Thought

In a letter two days ago from the Bank of England to The Treasury Committee (TSC) at the House of Commons, Mark Carney, Governor states that “improvements in preparedness [for No Deal Brexit] mean that the appropriate set of assumptions to underpin a worst case scenario would now be less severe than those used in the disorderly scenario published on November.”

In November 2018, the Bank suggested a ‘worst case’ scenario would result in:

• 8% reduction in gross domestic product (GDP – economic output)
• 7.5% rise in unemployment
• 6.5% inflation peak

Carney suggests that since November, the UK has improved its preparedness for a No Deal No Transition Brexit:

• Confirming Transitional Simplified Procedures (TSP) for customs checks at UK borders, in additional to a temporary waiver on security checks
• French border infrastructure preparations are complete for Eurotunnel and the Port of Calais
• Many UK traders are already registered to continue to trade with EU and vice versa.  Indeed, UK VAT registered businesses will soon receive their Economic Operator Registration and Identification (EORI) number in the in order to keep trading with customers and suppliers in the EU after the UK has left the EU.
• UK has announced a ‘No deal’ tariff scheme of which 87% of total UK imports will be eligible for tariff free access.
• Agreements are being reached daily around the World to rollover/mirror existing EU trade deals into direct UK trade deals.
• Regulators, financial services firms and EU counterparts have taken action to ensure institutions are financial strong enough to withstand financial shocks as well as stability in tighter credit conditions meaning reduced uncertainty for businesses and households when it comes to flow of money and availability of credit.

As such the Bank has revised down its gloomy predictions as follows:

• 5.5% reduction in gross domestic product (GDP) – down from 8%
• 7.0% rise in unemployment – down from 7.5%
• 5.25% inflation peak – down from 6.5%

Comment

There will be a slowdown and this in part will be caused by Brexit but the greater impact will come from global trade war and recession which would have hit the UK irrespective of being inside or outside the EU.

You can read the full letter here: https://www.bankofengland.co.uk/-/media/boe/files/letter/2019/governor-letter-to-chair-of-tsc-re-updated-brexit-scenarios.pdf