Phillip Hammond, the UK’s Chancellor of the Exchequer, famously said that nobody voted for Brexit to be poorer, but it is increasingly clear that this will be the case. Hard on the heels of an official government projection that suggested that the UK would be 3.9% worse off in terms of GDP 15-years under a more favourable deal than Mrs May has negotiated, Mark Carney has warned on the costs of a disorderly (read “no deal”) Brexit.
Speaking to the Treasury Committee, the Governor of The Bank of England warned that a disorderly Brexit could see prices in the UK rise between 5 and 10%, depending on the extent of the rupture.
As the UK imports about half of the food it consumes, prices would be susceptible to a rise should the value of Sterling fall, but it is likely that a disorderly Brexit would see tariffs being on imports under WTO rules. Increased border costs (due to required inspections) could also feed through into price increases.
Carney told the committee: "In the most extreme scenario, your shopping bill goes up 10%. At this point in time, the ports are not ready for a move to an administered WTO relationship. To be absolutely clear, our agents, my colleagues, we have gone to these ports and had conversations directly with the ports in question. We have talked to the private logistics companies, so we have gathered direct information on this."
If the UK fell back onto WTO rules, variable tariffs are applied dependent on the nature of the goods being traded. Whilst mineral fuels and pharmaceutical products attract a zero-tariff rating, processed foods are charged at 20 to 35% whilst meat imports see tariffs of between 45 and 50%. If the UK were to apply a zero-rating on EU imports, it would be compelled to offer the same deal to all other WTO members (whilst they would be under no obligation to reciprocate).
The Bank of England has been accused of “scaremongering” about its recent post-Brexit forecasting for a disorderly exit, but Carney pointed out that they are based the work of a core team of 20 senior economists and had been drawn up on the assessments of 150 professionals over a few years. The assessments had been vetted by the Monetary Policy and Financial Policy committees at the Bank.
On a positive note, Mr Carney said that the financial sector was prepared for all Brexit scenarios, noting: "We're already sleeping soundly at night, because we have the financial sector, the core of the financial sector, in a position that it needs to be for a tough scenario."
So far, the financial sector has seen the loss of 5000 jobs because of Brexit. The sector employs approximately half a million people, so the loss equates to 1% of the workforce to date.