Carney sees silver lining after Brexit hit to UK economy

LONDON (Reuters) – Bank of England chief Mark Carney has warned for years about the economic risks of Britain's exit from the European Union. Now that this has happened, Prime Minister Boris Johnson's plans to boost growth could include a silver lining.

Carney spoke to Reuters a month before the end of his nearly seven-year term as BoE governor and said Britain would address its main economic problem – poor productivity.

After an impressive December election win that paved the way for Brexit on January 31, Johnson gave the green light this week for a new high-speed line that is estimated to cost more than £ 100 billion.

The Prime Minister has promised further aid to regions where growth has lagged far behind London and other major cities.

"In an environment where everything gets a fresh look, this is fertile ground to take a step back and make bigger changes than would otherwise have been possible," said Carney when he said that Brexit could have a positive economic impact was asked.

"It's early, but there are several initiatives – the budget will tell – that indicate that some of these opportunities are being used," he said, sitting at a table in his office that has been BoE's for over 200 years -Governors is used. The leather top is worn thin when in use.

Carney spoke on Thursday shortly before Finance Minister Sajid Javid's resignation. The budget plan for March 11 is now being presented by the new Chancellor of the Exchequer Rishi Sunak.

When asked later about the change of finance minister, the BoE declined to comment further.

Carney penetrated the British financial scene from his native Canada in 2013 and took charge of monetary policy when the country was still struggling to get rid of the hangover of the global financial crisis.

Three years after his tenure, Britain voted in a referendum to leave the EU, although Carney and most analysts had warned that the UK economy was likely to suffer.

Carney, who has annoyed many Brexit supporters with his comments, has not changed his mind about it, although Johnson says leaving the EU will unlock Britain's potential.

"It is absolutely clear in the data whether both the survey data and the hard data that they have had an impact have a significant impact on investment and, of course, productivity," he said.

The BoE has estimated that the Brexit process has reduced productivity – a key measure of an economy's long-term growth – by 2%.

A "conceptual positive"

Nevertheless, Brexit could prove "conceptually positive" for the UK as it gains a foothold outside the EU, Carney said.

"It is a fundamental reorganization of our relations not only with the European Union, but also with our trade relations with the rest of the world, and it leads to a reassessment of the country's economic and structural policies," he said.

Mark Carney, Governor of the Bank of England, poses for a portrait during an interview with Reuters on February 13, 2020 in London, Great Britain. REUTERS / Dylan Martinez

Carney said there are signs of a rapid surge in confidence in Britain after Johnson's election victory ended uncertainty about whether Britain would really leave the EU on January 31.

"We are already seeing a recovery in confidence, business confidence and, to some extent, a strengthening of consumer confidence," he said.


Carney said he would have been surprised if someone said when he replaced the Bank of Canada with the BoE in 2013 that the UK economy, like much of the rest of the developed world, was still stunted.

The BoE lowered its forecasts for rapid economic growth without excessive inflation to just over 1% last month.

But Carney, who will become a United Nations envoy urging companies to recognize their climate impact, said he was optimistic that digital technology rewards would ultimately be shared across a small group of corporate titles.

"I believe there is a fundamentally positive element, namely the advent of machine learning, big data and the restructuring of the economy that comes with truly breakthrough technologies," he said.

Carney and other central bankers are currently monitoring the impact of the new corona virus, which has closed businesses and even entire cities in China.

Banks in the UK had been subjected to a stress test to withstand an economic collapse that was far more serious than the likely effects of the virus, and central banks may need to “look through” a quarter or two of the data reflecting the outbreak, he said.

Mark Carney, Governor of the Bank of England, poses for a portrait during an interview with Reuters on February 13, 2020 in London, Great Britain. REUTERS / Dylan Martinez

However, policy makers were ready to act when needed.

"We monitor it just like other central banks and financial authorities, and if it requires some form of action, be it on the macroprudential side or the political side, we will take it," said Carney.

Letters from William Schomberg and Alessandra Galloni; Arrangement by Toby Chopra

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