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Carney predicts worst-case scenario on no-deal Brexit

The BoE governor says a disorderly exit from the EU could trigger the sharpest economic drop and cause the Pound to plummet by as much as a quarter.

Carney predicts worst-case scenario on no-deal Brexit

Sterling will drop by 25 per cent and inflation will hit as much as 6.5 per cent if the UK ends up with a no-deal Brexit, according to the Bank of England (BoE).

Further predictions:

  1. The Pound will also hit parity against the Dollar
  2. The economy would contract and GDP would shrink by 8 per cent
  3. House prices would fall by 30 per cent
  4. Unemployment, which is currently at a multi-decade low, would also rise to 7.5 per cent
  5. The UK may go into a recession worse than that caused by the 2008 financial crisis.

BoE Governor Mark Carney did not dispel a possibility of a disorderly exit from the European Union but suggested the UK economy could withstand any outcome.

Even if Theresa May’s Brexit treaty sees the light, it will make the UK worse off, according to a government forecast. The figures suggest UK GDP will decrease by 3.9 per cent after 15 years under the UK Prime Minister’s plan compared to staying in the EU. The forecast also suggested a no-deal Brexit could cause GDP to shrink by as much as 9.3 per cent.

In the US, the S&P 500 stock index was up more than 2 per cent yesterday, 28 November after Federal Reserve (Fed) Chair Jerome Powell said US interest rates were nearer to “neutral levels“.

Market participants interpreted Powell’s comments as a sign the Fed will decelerate its current monetary policy tightening cycle. This also suggests the December rate hike could be the last for a while as the central bank will pay closer attention to new economic data. The Fed will release the minutes from its latest meeting at 19:00 (GMT) today. Any further dovish rhetoric will boost stocks and weaken the Dollar.

Finally, the US Bureau of Economic Analysis’ data released yesterday showed the US economy expanded by 3.5 per cent, in line with analysts’ forecast. But US GDP growth is likely to slow next year as the impetus from tax cuts would fade and the Fed’s interest rate rises would start to bite.

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