Bank of England governor warns of interest rate cuts if UK crashes out of EU

Mark Carney has warned that Britain would face “big economic consequences” and could need emergency interest rate cuts if the country crashes out the European Union without a deal.

Issuing the latest warning for Theresa May amid mounting division over her Brexit plans as Britain’s withdrawal ticks ever closer, the governor of the Bank of England said failure to reach any deal with Brussels would leave the country worse off.

“In a no-deal scenario there would be big economic consequences,” he said.

The intervention comes after the prime minister narrowly avoided a Commons rebellion from Conservative remainers unhappy over concessions she had made to hardline Brexit supporters, after accepting their amendments to a customs bill late on Monday. Carney has previously said every household in the UK lost £900 on average due to the Brexit vote.

Answering questions from the Treasury select committee, which had relocated to Farnborough Air Show to underline the importance of the aerospace industry to the UK economy, Carney said Britain crashing out without a deal would force the Bank to consider the future path for interest rates. He has previously said he would be prepared to cut borrowing costs to support jobs and the economy in the event of a no-deal Brexit.

The Bank’s governor said: “It would be a material event for interest rates if Britain leaves the European Union next year without a deal to smooth its departure. Our job is to make sure we are as prepared as possible.”

While arguing that banks in the City of London are able to withstand a disorderly Brexit, he warned Britain leaving the EU without a deal would trigger the fragmentation of the European financial system, which could drive up costs for consumers.

The UK might be left with “a lot of idle bankers” following a hard Brexit as much of the demand for their services comes from the EU, he said. His comments come after the Bank warned that contracts worth trillions of pounds between UK and EU banks may collapse following Brexit.

Carney’s latest intervention came after the Office for Budget Responsibility, the government tax and spending watchdog poured cold water on May’s claim that some of the increase in funding for the NHS would come from a “Brexit dividend”.

Releasing its latest fiscal sustainability report, the OBR said: “Our provisional analysis suggests Brexit is more likely to weaken than strengthen the public finances overall.”

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