Jack Maidment of Mail Online suspects that Mark Carney and Boris Johnson aren’t poles apart on Gatt 24, following the governor’s comments earlier.
The issue, though, is whether the EU would go along with Boris’s Plan B, if it didn’t provide a solution to the Irish border question, or settle Britain’s outstanding financial liabilities….
Deputy governor Sir Jon Cunliffe has warned the committee that the international economy is providing less support to the UK than in 2018.
Q: Don’t we need to conclude Brexit by Halloween, and end this nightmare, one way or another, asks Brexiteer MP Charlie Elphicke.
Mark Carney does his best impression of an Oxbridge don, telling the committee dryly that:
There’s a reason that that 40-plus trade deals stuck between advanced economies in the last quarter century have always had a transition from the status quo to the new arrangement….
I would underscore that it is highly desirable to give businesses enough time to adjust to the new reality.
Of course, it also matters what that new situation is, adds MPC member Silvana Tenreyro.
Worryingly, Mark Carney doesn’t expect the weak business investment to recover soon. Survey data suggests it was weak in the current quarter (April-June).
MPC member Michael Saunders chimes in, reiterating that market fears of a no-deal Brexit have risen.
The outlook for the economy would be very different now (ie better), if we knew now that we’d see a smooth Brexit, rather than face rolling deadlines and uncertainty, Saunders adds.
Mark Carney adds that the housing market has suffered from Brexit uncertainty, as the deadlines for Britain’s departure have been pushed back.
Q: Isn’t it “unreal” for the BoE to still be assuming a smooth Brexit in its forecasts, then?
Carney replies that the markets don’t believe no-deal is the most likely outlook – it’s not the official policy of the government, or either Boris Johnson or Jeremy Hunt.
But the Bank is working constantly on its no-deal preparations, in case.
Carney: No-deal Brexit fears are hurting the economy
Q: Do you think the risk of a no-deal Brexit is growing?
Carney turns the question deftly back onto the Treasury committee — pointing out that it’s the government’s job to plot the path forwards, and parliament’s job to approve it or not.
There has been a “notable increase” in market expectations of no-deal, he adds.
This uncertainty is hurting business investment, and hurting the UK’s short-term economic performance.
Deputy governor Sir Jon Cunliffe weighs in too — telling MPs that “we look to you”. The BoE is only a central bank, after all….
Carney: You can’t use Gatt 20 in a no-deal scenario
Q: The Westminster Village have been frantically googling “Gatt 24” (after Boris Johnson suggested it could be used to guarantee free trade with the EU). You have suggested otherwise….
[Reminder for any MPs baffled by Google: Gatt 24 allows tariff-free trade for up to 10 years while a permanent trade agreement is negotiated].
Mark Carney explains that the UK cannot ‘unilaterally’ used Gatt 24 – there has to be an agreement in place too. If other WTO members agree that both are sides working towards a free trade deal, then tariff barriers can be lowered.
The governor then explains that you can’t have ‘no deal and Gatt 24’, joking that it may all come down to symantics — but as a Canadian, he understands that ‘agreement’ means ‘deal’ in English.
Q: So Gatt 24 can’t apply in a no-deal situation?
There has to be an agreement, yes, Carney confirms. Not necessarily the Withdrawal Agreement, but something.
Carney: Not worried by Trump attacks on the Fed
Q: Is that Bank of England worried by Donald Trump’s attacks on the Federal Reserve (demanding interest rate cuts)?
Mark Carney explains that central bank independence is important.
He reassures the committee that “monetary policy hasn’t been compromised in the UK” (although I do remember some criticism of the BoE by Theresa May in 2016).
He adds that he isn’t worried that the Fed will be knocked off course from pursuing low inflation and full employment, saying:
I have full confidence that the Federal Reserve will conduct a policy to achieve their dual mandate, and that the timing and extent of any policy changes will be determined by how they think they can achieve that mandate.
Q: At the May inflation report, governor, you said that global trade tensions have eased? Does that still hold true?
It held true for about 48 hours, Mark Carney grins, before Donald Trump tweeted he was hiking tariffs on Chinese imports.
Q: Has the threat to economic growth from a trade war increased?
Deputy governor Sir Jon Cunliffe agrees that tensions have increased, with America also threatening Mexico with tariffs and targeting European car sales.
Markets are more sensitive to trade developments, Cunliffe says, warning that there are now “more ingredients” for a full-blown trade war.
Q: What advice do you have for your successor, Mr Carney?
Carney (who is due to leave the Bank next January) says being governor is an “honour and a privilege”. It’s also a unique role, as the Bank is responsible for financial stability as well as monetary policy.
It requires a particular background and set of skills, Carney points out.
Q: If Britain’s next prime minister decides that leaving the EU with a deal is impossible, your next inflation report will look very different than the May one….
Carney replies that this isn’t the Plan A of either candidate, but yes, in that scenario the forecasts will change.
MPC policymaker Michael Saunders tells the committee that the UK economy could do “a little better” than the Bank forecasts, if Britain leaves the EU smoothly.
In that scenario, he argues that interest rate rises will be needed.
Carney: No-deal Brexit could prompt stimulus
Q: But what if the Bank of England is wrong, and Britain crashes out of the EU without a deal?
We would change our forecasts, Mark Carney replies.
He argues that it’s not “automatic” whether the Bank would raise or lower interest rates, but several policymakers (including Carney) believe some stimulus would be needed.
That’s a hint that interest rates could be cut, to protect the economy, in a no-deal situation.