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Extreme Brexit could be worse than financial crisis for UK: BoE


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Extreme Brexit could be worse than financial crisis for UK: BoE

By David Milliken, Huw Jones and William Schomberg

 

2018-11-28T115701Z_2_LYNXNPEEAR0EA_RTROPTP_4_BRITAIN-WEATHER.JPG

Pedestrians shelter under umbrellas in front of the Royal Exchange and the Bank of England, in London, Britain August 16, 2018. REUTERS/ Hannah McKay/Files

 

LONDON (Reuters) - Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in a worst-case Brexit scenario in four months' time, the Bank of England said on Wednesday.

 

Hours after the government issued its own stark warning about a no-deal Brexit, the BoE said the economy could shrink by as much as 8 percent in about a year.

 

The two reports could add to pressure on lawmakers to drop their opposition to the Brexit agreement that Prime Minister Theresa May struck with other EU leaders on Sunday, which is far from certain to be approved in parliament on Dec. 11.

 

However, supporters of a more definitive break with Brussels quickly dismissed the reports as scaremongering, while advocates of closer ties said the forecasts demonstrated that promises of greater prosperity outside the EU had been a lie.

 

The BoE said the "disorderly" scenario -- involving severe delays at UK borders and financial markets' loss of confidence in British institutions -- was not its base case.

 

But if it happened, there would be a 25 percent tumble in the value of sterling -- taking it close to parity against the dollar -- a spike in inflation to 6.5 percent from around 2.4 percent now, and a jump in interest rates. House prices would fall by 30 percent.

 

Sterling <GBP=D3> gave up earlier gains as the BoE outlined its various scenarios.

 

It said a merely "disruptive" Brexit, with goods flowing across borders but facing tariffs and other barriers, would cause a 3 percent fall in gross domestic product.

 

"PREPARED FOR THE WORST"

"Our job is not to hope for the best but to prepare for the worst," Carney told a news conference, noting that Britain's banks could cope with the worst Brexit shock.

 

A deal that kept Britain and the EU in a close future relationship could lead to faster economic growth than the BoE pencilled in earlier this month, the central bank said.

 

But all of the BoE's scenarios assumed interest rates will rise. In the worst-case Brexit, rates could rise to 5.5 percent -- a level last seen in 2007, before the financial crisis -- from the current base rate of 0.75 percent.

 

Hours earlier, the government acknowledged that any Brexit option would be worse for the economy than staying in the EU, but said that leaving the bloc without any agreement with Brussels would weigh heavily on growth at least into the 2030s.

 

By contrast, the plan that May agreed with EU leaders on Sunday "delivers an outcome that is very close to the economic benefits of remaining in", finance minister Philip Hammond said.

 

The government and BoE reports triggered angry responses from hardline eurosceptics, who viewed the statements as a repeat of dire official warnings intended to sway voters before 2016's referendum.

 

"I'm afraid we must be ready for Project Fear 2.0," said former Brexit minister David Davis, who quit in July in protest at May's plans.

 

Andrew Sentance, a former BoE interest rate setter, challenged the BoE over its worst-case scenario.

 

"Does anyone really believe any of this as a real-world scenario?" he said. "The Bank of England is undermining its credibility and independence by giving such prominence to these extreme scenarios and forecasts."

 

"SMALLER, WEAKER ECONOMY"

Carney denied the charge of scaremongering.

 

"Parliament has demanded this analysis," he said. "It's not supposed to make people scared, it's supposed to provide reassurance that, even if this happened, which is not likely, the system is more than ready for it."

 

Opponents of Brexit said the projections gave the lie to promises made by Brexit campaigners before and after the referendum.

 

"These figures show that the government's stated policy is to make our economy smaller and weaker," said David Lammy, an opposition Labour Party lawmaker who wants Britain to stay in the EU.

 

The government report said that, in a scenario based on the Brexit plan that May announced in July, rather than Sunday's amended agreement with EU leaders, national output would be 2.1 percent smaller in just over 15 years' time than if Britain remained in the bloc.

 

If there was no deal, it would be 7.7 percent smaller.

 

Assuming zero net migration from the EU in the future, the hit to the economy would be bigger: 3.9 percent under May's deal, and 9.3 percent without a deal.

 

The report said Britain's automotive and chemicals sectors faced the biggest potential losses from a no-deal Brexit - more than 20 percent of output.

 

Brexit supporters say May's deal will hurt Britain over the long term by making it harder to strike trade deals with faster-growing countries and regions beyond Europe, and it is not clear that lawmakers will be swayed by the latest forecasts.

 

(Additional reporting by Andy Bruce, Andrew MacAskill and Elisabeth O'Leary; Graphic by Lea Desrayaud; Editing by Kevin Liffey)

 
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-- © Copyright Reuters 2018-11-29
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It is interesting to note that the issue of a report by B of E on the results of stress tests on banks (good all round) was abruptly and inexplicably delayed yesterday.

 

Analysts suggest that the results were "too good" for government interests, in that it states British banks would have no problems dealing with a hard Brexit. They, the government, needed more doom to pressure lawmakers to support May's deal.

 

This is simply more evidence, that the Bank of England long since ceased to be independent and is in lockstep with government interests.

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14 minutes ago, Briggsy said:

It is interesting to note that the issue of a report by B of E on the results of stress tests on banks (good all round) was abruptly and inexplicably delayed yesterday.

 

Analysts suggest that the results were "too good" for government interests, in that it states British banks would have no problems dealing with a hard Brexit. They, the government, needed more doom to pressure lawmakers to support May's deal.

 

This is simply more evidence, that the Bank of England long since ceased to be independent and is in lockstep with government interests.

You bought the fake news propaganda line, or were you promoting it, shame on you!

 

The results of the stress test and the associated report are here: https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2018/november-2018.pdf

 

https://www.cnbc.com/2018/11/28/bank-of-england-2018-uk-bank-stress-tests-and-brexit-report-published.html

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It's disheartening to see how yet again the Brexiteers have capitalised on yet another piece of analysis by The Treasury and are quoting just one of the many scenarios that appear in their report, the pro-Brexit newspapers have seized this firmly and are trying to portray Carney as pro-Remain....if in doubt, read the report, I have.

 

The facts are the Bank has done its job properly, it has created projections on a series of "what if" scenario's and has said what will happen in each case. For whatever self-serving reason the Brexiteer brigade has seized on the worst case option, exactly why they haven't promoted the best case options is truly a mystery because rather than promote their preferred solution they've chosen to attack, yet again, the alternate solution!  I quote Mark Carney who says: He said: "These are scenarios, not forecasts. They illustrate what could happen, not necessarily what is most likely to happen." https://www.telegraph.co.uk/politics/2018/11/28/mark-carney-accused-project-hysteria-bleak-no-deal-analysis/ (The Telegraph incidentally is a pro-Brexit newspaper).

 

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46 minutes ago, welovesundaysatspace said:

Congrats, Brexiteers. Good job. Well done. 

52% 0f the people that voted, would thank you for that congratulatory message

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1 hour ago, webfact said:

Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago if it leaves the European Union in a worst-case Brexit scenario in four months' time, the Bank of England said on Wednesday.

the UK expats must be jittery if the prospects of the UK pound are even dimmer

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As a committed Brexiteer I take no notice of these ongoing and nonsensical threats from the establishment. Project Fear was a disaster and did not work, time to drop the negativity. To have our country back, in any shape or state, is a far better outcome than to remain in the failed experiment that is the European Union. Constant riots in France, shocking unemployment across the Spain, Portugal and Italy, porous borders and evil NGOs reeking havoc on the social cohesion across the board. Bully-boy non elected eurocrats telling us how to live and think. No. No. No. We will take a nice, fast, hard Brexit and we will be proud to be Great Britain once again.

 

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Bank warns no-deal could see UK sink into recession

By Jill Treanor, Business reporter, BBC News

 

A no-deal Brexit could send the pound plunging and trigger a worse recession than the financial crisis, the Bank of England has warned.

 

It said the UK economy could shrink by 8% in the immediate aftermath if there was no transition period, while house prices could fall by almost a third.

 

The Bank of England also warned the pound could fall by a quarter. The Bank's analysis comes after the Treasury said the UK would be worse off under any form of Brexit.

 

Full story: https://www.bbc.com/news/business-46377309

 
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-- © Copyright BBC 2018-11-29

 

 

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Everybody who looks at the facts, and the thousands or articles about the facts, knows since a long time that Brexit, any form of Brexit, just doesn't make any sense. It's obvious.

But then there are the people who believe charlatans like Boris Johnson and others. They dream about unicorns and then complain that politicians and the EU won't deliver them.

By now this in not about logic anymore. It's about people who don't want to admit they were wrong. Unfortunately there are many of those people.

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2 minutes ago, OneMoreFarang said:

Everybody who looks at the facts, and the thousands or articles about the facts, knows since a long time that Brexit, any form of Brexit, just doesn't make any sense. It's obvious.

But then there are the people who believe charlatans like Boris Johnson and others. They dream about unicorns and then complain that politicians and the EU won't deliver them.

By now this in not about logic anymore. It's about people who don't want to admit they were wrong. Unfortunately there are many of those people.

Try googling Luxembourg leaks and see how crooked the EU is...

 

Nearly £1bn in tax breaks per year to big corporations. And the EU stands up for workers rights??? Do me a favour! That's why "socialists" like Corbyn have always voted against the EU in parliament.

 

The EU, The Commission and Commissioners are in the pockets of big business and the banks... only those who go in in for competitive virtual signalling on Facebook and the like can't see otherwise...

 

https://en.wikipedia.org/wiki/Luxembourg_Leaks

 

https://www.icij.org/investigations/luxembourg-leaks/

 

RAZZ

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22 minutes ago, TopDeadSenter said:

As a committed Brexiteer I take no notice of these ongoing and nonsensical threats from the establishment. Project Fear was a disaster and did not work, time to drop the negativity. To have our country back, in any shape or state, is a far better outcome than to remain in the failed experiment that is the European Union. Constant riots in France, shocking unemployment across the Spain, Portugal and Italy, porous borders and evil NGOs reeking havoc on the social cohesion across the board. Bully-boy non elected eurocrats telling us how to live and think. No. No. No. We will take a nice, fast, hard Brexit and we will be proud to be Great Britain once again.

And what do you think will happen after Brexit? Will the UK produce all they need within their own borders? Do they even have enough people to care about the old people?

Do you think the EK needs to trade with other countries? How do you think that will happen? Will the EU change their standards so that the UK can sell whatever they want to the EU? Or does the UK have to work according to EU standards to sell something to them?

Or do you think the UK will just trade with the USA, China, other countries but not the EU?

Look at reality. Then maybe you can still say you don't like the EU but maybe you will understand that they are better than any alternative.

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