Mark Carney, Bank of England governor, said on Thursday that if the UK made a “choice” to go for a no-deal Brexit, it would be significantly less costly than Britain crashing out of the EU accidentally.
Speaking to an audience on the sidelines of the International Monetary Fund’s spring meetings in Washington, he said many of the market disruption costs of leaving the EU could be contained if the government planned for a managed no-deal.
His words could embolden Eurosceptic Conservatives who are seeking to replace Theresa May as prime minister with a hardline Brexiter willing to pursue a managed no-deal involving trading with the EU on World Trade Organization terms.
Mr Carney said the decision by EU leaders in the early hours of Thursday to approve a second delay to the UK’s departure from the bloc — potentially until October 31 — gave British politicians time to forge a political process to resolve the Westminster impasse over Brexit.
Mrs May’s withdrawal agreement has been rejected three times by MPs, and she has embarked on talks with Jeremy Corbyn, Labour opposition leader, to try to reach a compromise deal.
Mr Carney suggested that if the UK had left the EU without an agreement — on either March 29 or April 12, the two dates previously earmarked for Brexit — it would have done so by “accident”.
“It’s different to decide to move to WTO terms in an orderly fashion, as well prepared as possible — we can debate the advisability of doing that — but to stumble into something accidentally, particularly when financial markets aren’t positioned for it . . . would have been substantial,” he added.
Mr Carney described Brexit as “one of the top three [global] risks . . because there would be real economic consequences for the UK and Europe”.
He said a no-deal Brexit would be a “negative supply shock” for the UK, something that had not happened to advanced economies in the last 50 years.
He also said the BoE had guaranteed the safety of the core of the financial system in the event of a sudden no-deal Brexit, but addressing stability risks was not the same as resolving market or economic issues.
“The financial markets were not positioned for the chance of no deal so there would have been quite a substantial repricing, I think. And, once that starts, other things are thrown into question, which was at least the way things were set up in the run-up to 29 March and last night,” he added.
Mr Carney said Brexit — which would pull apart the UK and EU economies that were “entirely intertwined” — was an example of trade tensions spread across the world.
He added that, since the 2016 Brexit referendum, business investment in the UK was 20 per cent lower than it would have been had there been a vote for Remain.