Brexit: Shopping bills could rise 10% if UK leaves EU with no deal, Bank of England governor Mark Carney warns

Carney said that a sharp fall in the pound would have a knockon impact for grocery prices

A disorderly no-deal Brexit could force up UK shopping bills by 10 per cent, according to the Bank of England’s governor Mark Carney.

Giving evidence to the Treasury Committee on the bank’s no-deal Brexit scenarios published last week, Mr Carney said that a sharp fall in the pound would likely have a knockon impact for domestic grocery prices.

“In the most extreme scenario, to give an outer bound, on average your shopping bill goes up by 10 per cent because we have a 25 per cent [sterling] depreciation,” he said.

“If you go to a more orderly scenario transition it’s something around 6 per cent. For individual food products it’s going to vary. But what people will do is that if the price of something goes up more than something else they will switch products.”

The Bank’s deputy governor, Ben Broadbent, expanded on the bank’s calculations.

“Currently we import a good quantity of our food, close to half from overseas. First, that makes it more expensive when sterling falls. Second, in these scenarios there are tariffs imposed. Third because of the increased costs at the border. For those reasons, yes, we would expect food prices to go up,” he said.

The record fall in sterling in the wake of the June 2016 Brexit vote resulted in a spike in UK prices, sending the inflation rate from 0.5 per cent to a peak of 3.1 per cent in November 2017.

Mr Carney, in the same session, said that UK ports such as Dover were not prepared for the consequences of a no-deal.

“At this point in time the ports are not ready for a move to an administered [World Trade Organisation] relationship. So what do I mean by administered? I mean we move to a WTO relationship and there are the customs checks that are consistent with that on both sides of the borders,” he said.

The bank’s no-deal Brexit scenarios – which it had been using internally to stress test the UK banking system – were published last week at the request of the Treasury Committee.

Mr Carney insisted that the bank was not engaged in trying to influence UK public opinion and added that the scenarios had been put together by a large team of senior economists.

“There’s no exam crisis. We didn’t just stay up all night and write a letter to the Treasury Committee,” he said.

“You asked for something that we had, and we brought it, and we gave it to you.”

In its “worst case” and “disorderly” no-deal scenario, the bank modelled an 8 per cent fall in GDP (which would be worse than the last recession a decade ago), a 33 per cent fall in house prices and a spike in interest rates to 5.5 per cent.

The latest survey results from the bank’s networks of regional agents, published on Tuesday, suggested that the output of firms would drop between 2.5 and 6.9 per cent over the next year in a no-deal scenario.

The survey also found that a majority of UK firms have not yet made any preparations for Brexit of any variety.

Mr Carney’s predecessor as governor, Lord King, joined critics of the central bank’s no-deal Brexit scenarios on Tuesday.

In an article for Bloomberg, he said: “It saddens me to see the Bank of England unnecessarily drawn into this project.”