November 20, 2018 / 10:35 AM / 21 days ago

HIGHLIGHTS-Bank of England's Carney speaks in parliament on Brexit

LONDON, Nov 20 (Reuters) - Bank of England Governor Mark Carney and other top monetary policy officials from the central bank were speaking to the Treasury Committee in Britain’s parliament on Tuesday.

Below is a selection of their comments.

ON STERLING:

“Implied volatility in sterling is very high right now, much higher than it is for other major currencies, for the obvious reasons of the states of the political discussions you’re all involved in and the importance for the outlook for the economy in the short and medium term.”

“The expectation of those who are active in those markets is that they’re volatile, that it will continue to be volatile for the next month at least.”

“(..) we welcome the transition arrangements in the (European Union) withdrawal agreement. ..and take note of the possibility of extending that transition period.”

CARNEY ON NO-DEAL BREXIT:

“This would be a large, negative shock to the economy - no deal, no transition.”

“This would be a very unusual situation. It is very rare to see a large negative supply shock in an advanced economy. You would have to stretch back at least in our analysis until the 1970s to find analogies.”

“The issues around Brexit, particularly around a no-deal, no transition Brexit, we have a role (...) but the real issues are going to be in the real economy. So they’ll be about how well the logistics system works, where business confidence is, what access, if any, is there in a true, no-deal transition Brexit.”

“This is not a financial crisis round two, where the Bank of England and other central banks were centre-stage, this is a real economy shock and therefore central banks have a role but we’re more of a sideshow.”

“(A no-deal) is not in the interest of any of the parties. But our job is not to make the political calculation. Mistakes happen sometimes. Events, people run out of time (...) so we need to be in a position in which we ended up with no deal, no transition for whatever reason either by choice or by accident, that we can give the assurance and the valid insurance that the financial system will be there.”

“I think it’s fair to say that in general most businesses have not activated contingency plans in the country and it’s also fair to say that a substantial proportion of businesses do not have contingency plans at this present time for a no-deal Brexit.”

CARNEY ON BREXIT TRANSITION:

“We (...) welcome the transition arrangements in the withdrawal agreement (...) and take note of the possibility of extending that transition period.”

CARNEY ON BANKS’ EQUITY PRICES:

“One of the things we have seen when expectations of no-deal have gone up in recent weeks is that there’s movements in sterling but also movements in bank equity prices.”

“So it’s (...) an expectation of the market that in a no-deal scenario there would be reduced profits or outright losses by those institutions (...) but the solvency, the health, the resilience, of those institutions would remain robust in a no-deal scenario.”

CHIEF ECONOMIST ANDY HALDANE ON COMPANIES:

“Notwithstanding the fact that details of the (Brexit) deal remain to be agreed, we are seeing somewhat greater impact on the behaviour of companies in particular in the last month or two.

“That could make for a somewhat weaker fourth quarter than we saw in the third quarter, and certainly a more volatile path for output I think over the next few months.”

MPC ECONOMIST MICHAEL SAUNDERS ON COMPANIES:

“I have the impression from talking to businesses (...) that most businesses are not prepared for a no-deal Brexit, and don’t know really how to prepare.”

“As the risk of a no-deal Brexit has become more visible recently, we have seen business confidence weaken and rising uncertainty, and that has had some affect on near-term economic activity.” (Reporting by UK bureau; Editing by Elisabeth O’Leary in Edinburgh)

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