Interest rates will not automatically go up or down if Britain crashes out of the European Union without a deal, the governor of the Bank of England has said.
Speaking at a panel at the World Economic Forum in Davos, Mark Carney said: “It’s not automatic which way policy would go in the event of a hard Brexit.
“And we’re remembering that we’re not predicting that, but we’ve got to be prepared for that”.
MPs are set for another crunch vote on the Prime Minister’s so-called “Plan B” Brexit deal on January 29, exactly two months away from Britain’s scheduled departure from the EU.
Theresa May’s first deal was rejected by Parliament by a majority of 230.
He said if the UK goes “through a period of de-integration, de-globalisation and reduction in trade openness” it would be “akin to a supply shock to the economy” with both demand and supply declining and currency and tariff pressures on inflation.
In those circumstances, he said the Bank “has to make the right judgment about the right path of bringing inflation back to target while doing what it can to support. But it is not an automatic approach.
“Particularly at times when there are big changes, you have to have some constants and for a central bank there are two constants: have a financial system that functions, which we would have if that were to happen, and keep your focus on your democratically given mandate, which is to achieve the inflation target.”
Inflation last month fell to 2.1%, within touching distance of the Bank’s 2% target.
Mr Carney also said that British businesses cannot completely prepare for a no-deal Brexit due to a lack of infrastructure at UK ports.
“There are a series of logistical issues that need to be solved, and it’s quite transparent that in many cases they’re not.
“So, port infrastructure is not there, border infrastructure is not there to the extent that it would need to be from jumping from an absolutely seamless trading environment to one with frictions that aren’t just tariffs, but are rules of origin of products, safety standards and other inspections that would need to be done.
“There is a limited amount businesses can do to prepare if there are going to be substantial delays on the logistical side”.
He used the example of logistics and supply issues that could arise for UK carmakers from a no-deal Brexit.
“If you are a car plant that relies on 40 18-wheelers [trucks] coming through Dover a day, and they have to show up within minutes of each other in order to meet the just-in time-requirements of the plant, you can’t stack things up all over Wales in order to ensure that you can continue to run it for months. That’s just reality.”
At the panel, the audience was asked for a show of hands to indicate if they were in favour of a second Brexit referendum. Mr Carney abstained, but UBS boss Sergio Ermotti raised his hand.