Brexit: No deal could wipe 5.5 per cent off economy despite preparations, says Bank of England

Worst case forecast ‘now less severe’ but Britain could still face soaring unemployment and inflation, says governor

The Bank of England has scaled back its worst case estimates for the damage a no-deal Brexit would inflict on the UK economy, but warned crashing out of the EU could still shrink GDP by 5.5 per cent.

Governor Mark Carney said the impact of a disorderly Brexit “would now be less severe” because of preparations made since last year. But a delay to the UK’s exit from Europe could help limit damage further, he added.

In a set of scenarios published in November, the Bank anticipated the economy could slump as much as 8 per cent after a no-deal Brexit.

Mr Carney provided updated worst case predictions ahead of a hearing in front of the Treasury Select Committee on Wednesday afternoon.

“Improvements in preparedness mean that the appropriate set of assumptions to underpin a worst case scenario would now be less severe than those used in the disorderly scenario published in November,” he wrote.

He told MPs the revised forecast took into account preparations such as “border infrastructure” at Calais, a temporary waiver on customs checks and British firms obtaining EU certification for their products.

But he added: “There’s more preparation that can be done, both in terms of public preparation and preparation by businesses.

“It stands to reason that if there were more time, more would be accomplished.”

If the bill debated by MPs on Wednesday becomes law, Boris Johnson would be required to seek a delay in the Brexit deadline from 31 October to the end of January unless he can first strike a deal with Brussels.

The Bank’s analysis of the worst case Brexit scenario still makes for gloomy reading, warning unemployment could spike to 7 per cent and inflation could shoot up to 5.25 per cent.

Mr Carney had previously said unemployment could surge to 7.5 per cent and inflation to 6.5 per cent.

Giving evidence to the committee, the governor told MPs the economy was already close to stagnating given the impact of Brexit uncertainty on businesses in the UK.

He said: “If you look through the underlying trend, our judgment is that the economy is growing very weakly, positive but very close to zero.”

The economy contracted by 0.2 per cent in the second quarter of 2019 and business data published this week has raised fears the UK is on course for recession.