Mark Carney has defended his warning that disorderly Brexit would cause economic harm, as Jacob Rees-Mogg is accused of ‘contemptuous’ remarks
- Mark Carney: Our Brexit analysis isn’t an exam crisis
- Food prices could rise 10% in disorderly Brexit
- Carney: Worst-case scenario is unlikely
- John Mann MP: Rees-Mogg was contemptuous of parliament
Earlier:
Former BoE governor Lord King’s attack on Theresa May’s Brexit deal concludes:
If this deal is not abandoned, I believe that the U.K. will end up abrogating it unilaterally — regardless of the grave damage that would do to Britain’s reputation and standing.
Vassal states do not go gently into that good night. They rage. If this parliament bequeaths to its successors the choice between a humiliating submission and the abrogation of a binding international treaty, it will not be forgiven — and will not deserve to be.
The Treasury committee seemed to accept Mark Carney’s defence of the Bank of England’s Brexit analysis.
But Carney’s predecessor does not!
It saddens me to see the Bank of England unnecessarily drawn into this project. The Bank’s latest worst-case scenario shows the cost of leaving without a deal exceeding 10 percent of GDP.
Two factors are responsible for the size of this effect: first, the assertion that productivity will fall because of lower trade; second, the assumption that disruption at borders — queues of lorries and interminable customs checks — will continue year after year. Neither is plausible.
There have been three episodes in modern history when the British political class let down the rest of the country: in the 1930s, with appeasement; in the 1970s, when the British economy was the “sick man” of Europe and the government saw its role as managing decline; and now, in the turmoil that has followed the Brexit referendum.
In all three cases, the conventional wisdom of the day was wrong.
Blimey. Mervyn King, for the former Governor of the Bank of England, has said the UK must reject Theresa May’s Brexit deal and has described it as “incompetence of a high order” and the “worst of all worlds”.
While Mark Carney was speaking, the UK car industry has been giving its own Brexit warnings to MPs.
As flagged up earlier, Toyota is expressing great concern that a no-deal Brexit would scupper the flow of lorries through the Channel Tunnel
Toyota deputy MD Tony Walker: “We would have stop-start production for weeks, possibly months” if there is no deal. He tells BEIS select committee value of production is £10m a day. “If we lost that sort of value it is very very challenging for us”.
Toyota will move the type approval of its new Corolla from Burnaston to Belgium in no deal. “I’m sorry about that” Tony Walker, deputy MD tells select committee. Jobs? Will only impact 10. If UK type approval continues, these jobs save
Toyota’s Tony Walker – it’s a “shame” that the word frictionless went missing somewhere between Chequers and the political declaration.
Tony Walker of Toyota tells MPs less than 20% of parts in Toyota are from UK. Add the labour and factory time it gets to 35%. No trade deal in the world would treat this as a UK product eligible for lower tariffs. Trade deal that counts EU and UK parts as the same is crucial.
Q: Why did you present your Brexit analysis on the same day as the Treasury published its work? Doesn’t that undermine your independence, asks Steve Baker?
Mark Carney repeats the Important Point from the Bank of England — the banking system is strong enough to absorb whatever Brexit throws at it.
We could be having a discussion about excessive caution.
Finally, an old friend (!) is back on the committee — Steve Baker, a former Brexit minister (and Leave campaigner).
Baker says he’s got more sympathy for governor Carney than he expected — it’s clear that the Bank worked in an “admirably dreary way” to assess the impact of Brexit, and prepare the financial system to cope.
Sometimes your words and analysis are used differently by different individuals who have certain priors. That’s life.
You discover in financial crises that confidence matters a lot.
Q: Is there a burst of pent-up investment in the economy, that will be released once Brexit is resolved?
Mark Carney agrees that some of the delayed spending hasn’t been lost permanently. But he also warns that business investment is 16% below where expected — some of that will hopefully be recovered, as firms are “keen to get on”.
JUST IN: Bank of England Governor Mark Carney says UK investment is about 16 percent below where it was expected to be before the Brexit referendum pic.twitter.com/m3esf0vCuZ
The committee now turn to the question of tariffs…. why would Britain impose them on the EU in a no-deal scenario?
Carney agrees that the UK could decide not to push up the price of goods which are tariff-free today. But, under WTO rules, it would then have to waive them for everyone else (thanks to the “most favoured nation” rules).
Catherine McKinnell MP questions whether New Zealand’s trade shock in the 1970s is actually a good example for Brexit.
[New Zealand (a rather smaller economy than the UK today) lost preferential trade rights when Britain joined the EU in 1973].
Q: Alison McGovern MP asks which sectors of the UK economy will be most hurt by Brexit, even in a smooth scenario.
Mark Carney says the size of the damage all depends on how closely the UK remains linked to the EU. But whatever happens, the most affected sectors will probably be “food and agriculture”, “chemicals and pharmaceuticals”, “cars and transport”, and “construction”.
Q: Hasn’t the Bank’s credibility been hit by your forecasts before the EU referendum about the consequences of Brexit?
Governor Carney replies that the Bank predicted that sterling would fall, inflation would rise, real wages would be squeezed and growth would slow. That all happened.
Deputy governor Sir Jon Cunliffe has also been to Dover, and explains why trade would be disrupted by a no-deal Brexit.
For 92% of the 4.5 million trucks through Dover every year, they just roll on and roll off….
The 8% who actually come from outside the EU, wait 30 to 60 minutes while customs officials check that they’ve got the right documentation.
Andrew Sentance hits back!
Mark Carney rather unconvincing in front of Treasury Committee today. Could not justify why #BoE Financial Stability Report analysis assumed an interest rate rise to 5.5pc. I will be giving my views to the Committee tomorrow morning (9.15am).
Q: Former Bank of England policymaker Andrew Sentance has said your Brexit analysis is “highly speculative and extreme”, and that it’s implausible that you would actually raise interest rates in a no-deal scenario.
Oof! Governor Carney twists the knife, saying that he stands by his own voting record at the Bank [Sentance, though, voted AGAINST interest rate cuts in 2008, as the economy moved towards recession].
So if we end up in a system, by accident or design, where there is some disruption in terms of trade, and the economy’s ability to seamlessly adjust, the financial system will be part of the solution.
On that day you will expect us to have done our job for the last two years. And part of that job is not just focusing on price stability.
Mark Carney chuckles when told he has a “history of reluctance to raise interest rates”.
MPs questioning the “credibility” of the Bank of England’s doomsday no deal scenarios, which sees interest rates hiked to over 5%.
“I stand by our record, and my voting record” says Carney.
Asked about the market’s preparation for Brexit, Carney replies that “very few” people in finance have experienced a true economic shock.
For most (less experienced) City workers, their experience is that central banks provide stimulus “every time something difficult happens”.
Carney: Sterling has not factored in high chance of a disorderly Brexit
you ain’t seen nothin yet
Carney is in a ‘take no prisoners’ mood today.
He’s ticked off Charlie Elphicke after the MP claims the Bank hasn’t modelled the idea of trade ‘substitution’ after Brexit, or co-operation with Calais to minimise friction.
It is modelled…don’t assert what is not correct.
Charlie Elphicke, MP for Dover, asks about the UK’s preparation for a no-deal Brexit.
Q: Will there really be big queues at the ports, given Britain already trades with the rest of the world without disruption?
At this point in time, the ports are not ready for a move to an administered-WTO relationship… where we move to a WTO relationship with customs checks on both sides of the border.
The truck that comes here has to come back. And the truck that comes back empty, or has to wait, isn’t going to come here in the first place.
And that’s something you learn after about 5 minutes when you start to have these conversations with logistics companies or the ports themselves.
Q: What do you say to those who say the ‘worst case’ scenarios for Brexit’s impact on the City can’t happen? That passporting won’t be completely lost, and 75,000 jobs won’t be wiped out?
Mark Carney says he says what he’s already said to the UK’s EU partners. Namely, it is “absolutely in interests of both sides to maintain a high-degree of integration between both systems”.
Q: Are my constituents better off since you became governor, John Mann asks.
Yes, Mark Carney replies after a pause.
Q: If there is a no-deal Brexit, will food prices go up? And if there is a deal, will food prices go up here, and in Europe, John Mann asks.
Mark Carney thanks Mann for his opening statement (blasting Jacob Rees-Mogg).
If there is a 25% drop in the pound, the cost of your shopping basket rises by 10%.
Labour MP John Mann now weighs in, and savages Conservative MP Jacob Rees-Mogg for his criticism of the governor last week.
Our democracy is fragile at the moment, says Mann. He reminds the room that the Treasury committee had unanimously asked the Bank to contribute to its work on Brexit.
What Rees-Mogg did was contemptuous of parliament, in suggesting that you weren’t being straightforward with this committee. Contemptuous. And that needs stating loudly….
I’d like to thank you for providing your advice, and being here today.
Q: What about the idea that Britain could take the Norway model for Brexit, rather than Theresa May’s deal?
Deputy governor Jon Cunliffe says joining the EEA would be “quite uncomfortable” for the City.
Governor of the Bank of England tells me @CommonsTreasury that the UK being a rule taker in a future arrangement would be “highly undesirable”. Sir Jon Cunliffe says it would be very difficult.
The committee are now asking about the consequences for the City, if banks lose their EU passporting rights.
Deputy governor Sam Woods says there is a “significant dropdown” if the financial system moves to a system of regulatory ‘equivalence’ [where the two sides agree to recognise each other’s standards].
As a reminder, here’s the key points from the Bank of England’s scenario for a disorderl Brexit:
Mark Carney isn’t willing to provide ‘confidence bands’ for how it thinks Brexit will play out.
But he does believe that a truly disorderly Brexit is unlikely.
[There’s a] low probability that all these risks would happen at the same time.It’s not just a question of the formal trade barriers that come into play but also shorter-term disruption in terms of port infrastructure and other logistical disruptions.
Q: Governor, you told us at your last session here that it would take four years to do a trade deal, and half that time to implement it. Does that make the backstop inevitable?
Mark Carney clarifies that he was talking about average trade deals in the past – he’s not party to any inside information about how the UK-EU trade talks would play out.
Q: Your analysis suggests sterling could fall 15% after a disruptive Brexit, and by 25% in a disorderly Brexit. How do you model that, given the pound has also weakened since the financial crisis and the EU referendum?
Deputy governor Ben Broadbent says that the fall in the sterling (to $1.28 today from $1.48 before the referendum) reflects a range of possible alternatives for Brexit. So the more disruptive Brexit is, the more the pound will fall.
Politely, but firmly, Mark Carney then lets rip at critics of the Bank’s analysis of Brexit.
He tells the Treasury committee:
We had a core team of 20 senior economists working on this for a couple of years.
They drew in another 150 professionals from across the Bank. Plus two senior committees, the MPC and the FPC [the monetary and financial policy committees].
Committee chair Nicky Morgan MP says, with some understatement, that the Bank’s analysis of Brexit attracted “not entirely universal praise” last week
How would you respond to the criticism?
Deputy governor Ben Broadbent tells MPs that there’s no real precedent for the impact a no-deal Brexit would cause.
The nearest parallel is the trade shock suffered by New Zealand in the 1970s; the Opec oil supply shock is another example of the impact of sharply higher import costs.
Parliament’s treasury committee has begun its hearing with the Bank of England.
Testifying, we have governor Mark Carney, and deputy governors Ben Broadbent, Sir Jon Cunliffe and Sam Woods. You can watch it live here.
Related: Bank of England warns no-deal Brexit would cause historic downturn – as it happened
The Financial Times has an alarming story about the potential impact of a no-deal Brexit.
Chris Grayling, transport secretary, has warned the cabinet that trade on the key Dover-Calais route could be cut by up to 87 per cent in the event of a disorderly exit, as checks and customs controls are introduced in France.
The pro-Brexit Mr Grayling has written to colleagues seeking approval for the chartering of ships, or space on ships, to operate on alternative routes, bypassing likely blockages in the Strait of Dover.
Ferry space faces rationing under no-deal Brexit https://t.co/QEknNZ68ot
Toyota’s Tony Walker also warned that Britain simply isn’t ready to leave the EU without a transition deal.
Asked about what would happen if there was no deal next March, Walker said:
“It’s unimaginable to introduce full customs clearing in WTO terms overnight at the end of March, so we would have delays. We import many of our parts, and we would stop start production for weeks, probably months, which would be hugely expensive and disruptive.”
Theresa May’s Brexit deal has few supporters in Westminster, of course, and may be voted down next week.
But Toyota’s Tony Walker argues that the agreement is valuable, telling Radio 4 that:
“It allows trading to continue on the same terms as today until the end of the transition period and it gives us direction rather than further confusion for the long term.”
“Trade which is frictionless at the border, and if we can develop proper automated systems we can achieve that.
We need common technical standards for cars and it’s talking about that deep and meaningful regulatory harmonisation and… it talks about zero tariffs in the deal which is excellent, it’s a huge progress for us, we need something on cumulation, so we can accumulate for rules of origin purposes. all those things look within reach.
The pound just jumped by half a cent, on these newsflashes from the European Court of Justice:
TOP EU COURT’S ADVOCATE GENERAL SAYS BRITAIN CAN REVOKE BREXIT ARTICLE 50 UNILATERALLY
*U.K. COULD PULL ARTICLE 50 UNILATERALLY, EU COURT AIDE SUGGESTS #Brexit #GBPUSD #EURGBP
GBPUSD 1.27875
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
“stop-start production for weeks, probably months. It would be hugely expensive and disruptive.”
Toyota Europe boss discussing Brexit on @BBCr4today, having already waxed lyrical about JIT, build in sequence & low WiP, was asked “What about stockpiling; would that work for you?” The horror in the guy’s voice…
Toyota needs 4 hours JIT supplies. Any delay, production stops. Spokesperson prefers no Brexit altogether, but WA is a start.. #r4today
Good morning on another huge day in Parliament where the order paper and process will be key. We have a privilege motion that sees the Government facing the unprecedented judgement of being found in contempt of parliament before the start of 5 days debate on May’s Brexit deal 1/x pic.twitter.com/YMhRRd4DQ0
We have a deal at #Eurogroup. EU leaders will sign off on an EMU package that *will* include the mention of a eurozone budget that says “stabilisation somehwere in it ! Agreement took over 15 hours
Eurozone finance ministers have formally approved the #Greek budget for 2019, which cancels the planned pension cuts for 2019 https://t.co/FJrdpNazS2