The economic impact of Brexit is a warning to the rest of the world of the risks of global trade uncertainty, the Bank of England governor has said.
Speaking to an audience of senior City figures in London, Mark Carney said the threat posed by conflicts over trade were greater than a financial crisis or a turn in the business cycle.
“With fundamental uncertainty about future market access, UK investment hasn’t grown since the referendum was called and has dramatically underperformed both history and peers,” he said at the event, which was hosted by the Financial Times.
The world risked going down the same route, Mr Carney added.
“Similarly, a prolongation of global trade uncertainty could undermine the global expansion,” he said. “Contrary to what you might have heard, it is not easy to win a trade war.”
Britain’s bid to leave the EU was a “leading indicator” of the fundamental pressure to reorder globalisation, he added.
“It is possible that new rules of the road will be developed for a more inclusive and resilient global economy,” the governor said. “At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all. Concerns over this possibility are already impairing investment, jobs and growth, creating a dynamic that could become self-fulfilling.”
Brexit was fundamentally about whether a compromise could be found between democratic accountability and economic co-operation, Mr Carney said, telling politicians that it was “imperative” to find an outcome that balances sovereignty and openness.
Although he has to date taken a relatively low-key approach to setting out his views on Brexit, the speech marks a turning point for the BoE governor. As the UK enters its final weeks of EU membership, he has begun to spell out more clearly the economic implications of leaving with no transition deal.
Economic data published on Monday highlighted the dramatic impact that Brexit is having on the UK economy: output has slumped and growth in 2018 was at its lowest level since the financial crisis.
The BoE put future rate rises on hold last week, citing the uncertainties around Brexit as well as the slowing global growth picture.
The “fog of Brexit” was creating tensions in the financial markets which the Bank needed to monitor, Mr Carney said last week, as the BoE’ downgraded its outlook for Britain’s economy to its weakest level for a decade.
The BoE last week estimated a one in four chance of a recession in the first half of 2019 and that was without knowledge of the latest data, which were significantly worse than expected.
Mr Carney’s remarks came as Theresa May told MPs that “we now all need to hold our nerve” on Brexit.
The prime minister said in a statement to the House of Commons at lunchtime that Brexit talks were at “a crucial stage”. But Labour and some cabinet members believe she is running down the clock to exit day on March 29 to force MPs to back her position rather than risk the UK crashing out of the bloc without an agreement.
With no revised Brexit deal in sight, some ministers expect Mrs May’s negotiations to run into next month in the hope that Brussels and her critics at Westminster to blink.