Bank of England’s “worst-case scenario” projects house price fall
In September last year, Mark Carney, governor of the Bank of England, met with the cabinet and discussed the potential risks of leaving the EU without a deal.
He warned that the worst-case scenario the bank had projected as part of one of its routine “stress checks” indicated that “house prices could fall as much as 35 per cent over three years”, according to the BBC. He emphasised that this was by no means what the bank expected would happen; it was simply at the outer limit of what they believed was within the realms of possibility.
Carney, who confirmed in the same month that he would stay on as governor until January 2020, said that the bank’s job was to “after all, not hope for the best, but plan for the worst”.
In a speech in Dublin, he said: “The Bank of England is well prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes.
“We have used our stress test to ensure that the largest UK banks can continue to meet the needs of UK households and businesses even through a disorderly Brexit, however unlikely that may be.”
Kamal Ahmed, economics editor at the BBC, has claimed that Carney’s forecast was not a forecast at all, but rather an “apocalyptic test where the bank deliberately sets the parameters beyond what might reasonably be expected to occur”.
He continued: “The major banks all passed the test, giving reassurance that the financial system can cope with whatever happens [in 2019].
“The governor believes that a ‘no deal’ scenario would be bad for the economy. But not as bad as the headlines today, which are based on a doomsday scenario that is not forecast to happen.
“If there is a ‘good deal’ with the EU, Mr Carney believes there could be a significant boost to the economy as pent-up demand held back by the present uncertainty is released.
“Investment could rise markedly, he has argued.”
Carney has previously come under criticism from Brexiteers for similar negativity about leaving the EU.
Jacob Rees-Mogg has since branded him the “high priest of Project Fear”, while Iain Duncan Smith stated in response to the scenario Carney presented that “there is no such thing as a no-deal” and that the Bank of England “struggled to understand how [leaving the EU] would work”.
Just a day before their governor discussed his concerns of leaving the EU without a deal, the Bank of England left interest rates on hold at 0.75 per cent as a result of “greater uncertainty” surrounding Brexit. The bank’s Monetary Policy Committee voted 9-0 to keep the rates the same.
This came a month after a rise by 0.25 per cent meant rates were the highest they had been since March 2009.
Ben Brettell, senior economist at British investment giant Hargreaves Lansdown, told the BBC that rates are unlikely to rise until after the UK leaves the EU.
He said: “Policymakers are firmly in ‘wait-and-see’ mode, having raised rates last month, and will be reluctant to even consider another move until they have a clear idea of what Brexit will look like.
“Realistically, May  looks the first available opportunity to raise rates to one per cent.”
In the same report, regional staff members at the bank explained there was a trend of businesses cutting costs and postponing investment decisions – likely until Britain leaves the EU in March this year.
Conversely, it also outlined that over the summer the economy had grown, likely as a result of the record summer and the 2018 World Cup, which both in turn boosted consumer spending.