Whilst Mrs May has noticeably dropped all references to “no deal is better than a bad deal” having secured her withdrawal agreement with the EU, she has refused to rule it out as a potential outcome of MPs failing to endorse her deal when it is presented to them in December (“the meaningful vote”). However, many people inside and outside of parliament believe that the government would not allow a catastrophic no deal scenario to play out. In other words, the think Mrs May is playing a high stakes poker game and is simply bluffing.
Support for the more dovish outlook came from the Governor of The Bank of England, Mark Carney, during a BBC radio interview as he pointed out that business is ill-prepared for a hard Brexit. Carney told BBC Radio 4’s Money Programme: "we know from our contacts with business, others know from their contacts, that less than half the businesses in the country have initiated their contingency plans for a no-deal Brexit. All the industries, all the infrastructure of the country, are they all ready at this point in time? And, as best as we can tell, the answer is no".
Arguing that the nation would need a transitional period, planned in the withdrawal deal, he remarked: "We know issues around the borders, we go to the ports and we know the issues that are there today. So we need some time to get ready for it."
Carney had been criticised for warning that a “no deal” Brexit could tip the UK economy into recession, with Brexiters claiming it was an attempt to scare people into accepting the May deal.
Carney’s warning came in the same week that the government’s own forecasts predicted that all Brexit scenarios would have a negative impact on the UK economy (as we reported earlier). A “no deal” Brexit was estimated to trim 9.3% of UK GDP in 15 years whereas Mrs May’s preferred deal would cause a 3.9% hit.
The Bank of England suggested (Wednesday) that a “no deal” Brexit, where the UK was denied a transitional period, would cause the UK economy to shrink by 8% in the short-term; house prices could see a 30% fall and Sterling might fall by as much as 25%.
Much the same point was made in a report to the Treasury Select Committee by the Financial Conduct Authority. It noted:
"Leaving the EU creates a number of risks for us regardless of the form of exit. The implementation period helps address these at the cost of a lower ability to influence regulation during that period. An exit without agreement would carry much higher risk and carry significant uncertainty for us and for firms. Against that background, and viewed through the lens of our statutory objectives, the draft Withdrawal Agreement and the outline political declaration are preferable steps."
Writing to the chair of the committee, Nicky Morgan MP, FCA chief Andrew Bailey noted that a “no deal” situation: "would create significant challenges and risks in terms of firms' readiness, potential market disruption and insufficient public-policy solutions put in place on the side of the EU".