Mark Carney warns of instant shock from no-deal Brexit

A no-deal Brexit would result in an instant shock to the UK economy, the governor of the Bank of England, Mark Carney, has warned.

Items such as petrol and food would become more expensive if the UK leaves the EU without an agreement, he said.

He predicted the value of the pound would fall in response to what he described as a “real economic shock”.

“The change in trading relationship means that real incomes will be lower,” he told the BBC’s Today programme.

But he rejected claims that the Bank’s decision to cut growth forecasts was gloomy, after former Tory leader Iain Duncan Smith accused him of reviving “project fear”.

Mr Carney said “you’re hard pressed” to describe the Bank’s forecasts in that way.

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Fundamental change

On Thursday, the Bank said the economy was expected to grow by 1.3% this year, lower than its earlier projection of 1.5%, if the UK leaves the EU with a deal.

It did not say what it expected to happen in the case of a no-deal Brexit.

But Mr Carney told the BBC there was a “significant possibility” that a deal would not be struck.

“The economics of no deal are that the rules of the game for exporting to Europe or importing from Europe fundamentally change,” he said.

As a result, he said, “very big” and “highly profitable” industries in the UK would become “uneconomic”.

“Very difficult decisions will need to be taken,” he said, explaining that those would have a “knock-on” effect on the economy.

He pointed to carmakers, food manufacturers and chemical firms as some of those that would be hardest hit.

“These are the sectors that have not been investing,” he said.

“One of the reasons why the economy has slowed is that business investment has been very, very weak.”

Providing support

But Mr Carney said the Bank’s response to a no-deal Brexit would not be automatic.

He explained the Bank would look at the effect on the economy of things such as car plant closures as well as a weakening pound before it decided how to respond.

“We will do everything we can in order to provide support to the economy,” he said.

But he warned that a no-deal Brexit would be inflationary.

“Instantly, you have supply disruptions but you actually have businesses that are no longer economic.”

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