Global Daily – Bank of England supports draft Brexit deal

by: Aline Schuiling , Georgette Boele

UK politics: BoE sees draft Brexit deal as the best achievable – Today, Bank of England Governor Mark Carney spoke to the UK Parliament’s Treasury Committee. He was joined by Chief Economist Andy Haldane, deputy governor Jon Cunliffe and policy maker Michael Saunders. They warned of the dangers of leaving the EU without a smooth exit. Mr Carney said that it takes about four years to agree the average trade deal, which is about the twice as long as the current transition period. So this gives a very limited window to negotiate. Mr Carney said that Prime Minister Theresa May’s draft Brexit deal would support investment and would increase certainty for business. He also said that he welcomed the transition arrangements in the withdrawal agreement and the possibility to extend the transition period. According to him there was some upside in economic growth if Parliament would back Theresa May’s plan, but there is more downside in terms of a no-deal Brexit. Chief Economist Andy Haldane said that uncertainty surrounding Brexit had already started to impact businesses and could lead to weaker growth in the fourth quarter.

The EU leaders will meet on 25 November to endorse the UK’s exit deal from the EU. Prime Minister May then takes the deal to parliament, most likely in mid-December. On 28 November the Bank of England will release de financial stability reports and stress test results. Its analysis will look at how the EU Withdrawal Agreement will affect the Bank’s ability to deliver its statutory remits for monetary and financial stability, including in a no-deal, no transition scenario.

We think that parliament will pass the deal to avoid a chaotic No-deal outcome. However, this is with a low conviction level. If parliament opposes the deal and the government collapses, a new government could be returned to push through an agreement, whether Conservative or Labour. However, there continues to be a material risk of a No-deal Brexit. Please see our UK Watch, The macro impact of Brexit scenarios for more.