LONDON (Reuters) - The Bank of England cut its growth forecasts on Thursday in the face of increased Brexit worries and a slowing global economy, but gave no indication it was considering lowering interest rates like other central banks.
Below are comments from Mark Carney at a news conference after the BoE announcement:
ON NO-DEAL BREXIT
“Financial stability is not the same as market stability. In the event of no-deal, no transition Brexit, sterling would likely fall, the risk premiums on UK assets would rise and volatility would spike higher.
“Similarly preparations by governments and businesses for no deal are vital to reduce the potentially damaging transition costs to a WTO relationship with the EU. But those preparations cannot eliminate the fundamental economic adjustments to a new trading arrangement that a no-deal Brexit would entail.”
“The value of giving the guidance on the still most likely scenario - it’s become less dominant than previous, but the still most likely scenario - is so households and businesses know where it’s going. And quite frankly markets know where it’s going and if you strip out their no-deal probability weighting, it’s basically where they expect it to.”
ON POLICY RESPONSE TO NO-DEAL BREXIT
“There are multiple reasons why there might be greater spending. It can be for social services and protection, it can be to boost productivity through infrastructure and other spending. It can be for no-deal planning as was announced today, and it can also be for contingencies in the event that the economy is weaker because of the nature of the negotiations or the adjustment to the EU relationship and in any of those events what we do... is we take into account what the government decides and then we can be pretty nimble and quick in adjusting policy in either direction accordingly.”
“It would be an unwelcome development for the global economy. As the perceived probabilities of this event shift around, my incoming calls from fellow policy makers and interested observers certainly go up and the intensity of discussions that are had increase.
“There is a lot of focus in terms of the interconnections within the financial sector itself through financial markets and I think there is an understanding, there is an appreciation of both the fact that in our judgement and the judgement of European authorities that the core of the system is ready.
“But also this distinction between being ready and resilient doesn’t mean markets don’t move and they don’t move potentially quite sharply. Of course, when you get risk events quite often correlations shift fairly substantially in ways that aren’t anticipated and have knock on effects.”
“It would have effects ... beyond the GDP weighting, if you will, of the UK economy.”
ON ANY BOE MOVES IN MARKETS AFTER A NO-DEAL BREXIT
“Heavy volumes, big moves in sterling but the markets functioned well,” he said of how markets performed after the Brexit referendum in 2016.
“You would expect us to take appropriate measures or be ready to take appropriate measures to ensure that that is the case but it is highly, highly unlikely.”
“What one wants when you have a big economic shock and we’ve learned this, and we are a firm believer in it, is that markets adjust.”
Reporting by Costas Pitas and Michael Holden; Editing by William Schomberg