The future of the fifth largest economy in the world is dependent on the nature of the EU withdrawal and the quality of the transition period, Mark Carney said on Thursday. The monetary response to whatever deal comes out of the negotiation rooms in Brussels could go in either direction, he warned.
His comments come as the Bank of England (BoE) on Thursday trimmed its growth forecasts and froze interest rates.
The Monetary Policy Committee (MPC) will keep its Bank Rate at 0.75 percent and maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at $563 billion (£435bn).
Whatever happens as a result of UK-EU Brexit talks, British monetary policy will "act to ensure price stability," the BoE Governor said. In terms of projections for the future, the MPC outlined the expected growth of GDP.
"In the Committee's central projection, conditioned on the gently rising path of Bank Rate implied by market yields and on a smooth adjustment to the average of a range of possible outcomes for the United Kingdom's eventual trading relationship with the European Union, GDP is expected to grow by around 1¾% per year on average over the forecast period."
In the case of a no-deal Brexit, there would be a hit to supply, "potentially fairly large and certainly more rapid than one is accustomed to in an advanced economy," Carney suggested. He then reassured the public that banks would be ready for any scenario, having secured adequate liquidity and contingency plans.
Brexit uncertainty has seen the UK currency fluctuate in the past several months, hitting its lowest points and climbing back up, reactive to the success of PM Theresa May's discussions with Brussels.
Pound sterling rallied on Thursday following a rise the previous day when UK Brexit Minister Dominic Raab said he expected a Brexit deal to be concluded by November 21.
Brexit Minister Dominic Raab says he expects the Brexit Divorce deal to be agreed with Brussels by November 21st.
— Andrew Neil (@afneil) October 31, 2018
Dominic Raab has told MPs in a letter he thinks there will be a deal finalised by 21st nov — No 10 trying to play that down — hear decision about having a Nov summit likely to be taken in next week — pretty unclear
— Laura Kuenssberg (@bbclaurak) October 31, 2018
This must be one of the quickest u-turns in political history. @DominicRaab told MPs that a Brexit deal would be done by the end of November. Three hours later his own department was forced to correct the record. What a mess. https://t.co/L0nrbpoqws
— Keir Starmer (@Keir_Starmer) October 31, 2018
Is Dominic Raab to be taken literally when he says there will be a Brexit deal before November 21? No, I'm told. This is more HMG trying to enforce the pace to stop EU from winding down the clock.
— Tom Newton Dunn (@tnewtondunn) October 31, 2018
The European Council meeting in December is widely viewed as the practical deadline for Britain to finalize the conditions of its withdrawal from the bloc.
"As the deadline for concluding the Withdrawal Agreement approaches, the expectations of households and businesses are diverging somewhat from this base case assumption. In general, households are more sanguine, while businesses are more wary. These shifting expectations could lead to some greater-than-usual short-term volatility in the data," Mark Carney said on Thursday.
