The long-term effects of a no-deal Brexit on the economy would be “worse than Covid's”, according to the Bank of England governor.
Speaking on a Treasury select committee hearing yesterday (November 23), Andrew Bailey said there was “reason to believe” the effects of a no-deal Brexit were longer term than the impact of the coronavirus crisis on the economy.
He said: “I am rather more on the optimistic end on the Covid front. It takes a much longer period of time for the real side of the economy to adjust to the change in openness and trade.
“It is hard to put a multiple on it...but you would expect a longer-term effect from a no-deal Brexit.”
The BoE governor was discussing analysis from LSE which suggests the long-term economic hit of a no-deal Brexit would be around two to three times as large as the impact of Covid, with the economy expected to shrink around 8 per cent over the next decade.
This differs from the Covid-19 crisis, where the BoE forecasts an 11 per cent reduction in the economy this year, but a substantial bounce back in 2021.
Mr Bailey added: “There is no such thing as a frictionless deal, anything involves change. I think it is in the best interest of both sides for there to be a trade agreement, and for that trade agreement to have a strong level of good will around it.”
The transition period for Britain’s exit from the European Union comes to a close at the turn of this year, with Brussels and London expected to come to an agreement within the next few weeks.
Tensions have remained high throughout the negotiations, however, and a no-deal Brexit has not been ruled out.
Mr Bailey told the Treasury committee that he hoped any agreement took place with “good will” around the implementation process, primarily to help firms with their preparedness.
Through its investigations, the central bank has found that larger firms are more prepared than SME businesses for the effects of Brexit.
Mr Bailey said: “It is quite common when we talk to firms that they say ‘we’re as ready as we can be’, which leaves you wondering what ‘can be’ really means.
“What does come through is that large firms report they feel they are more prepared than small firms.
“We also detect some differences in the consequences of responses depending on how directly affected the firm feels. Those most in the firing line have spent more time thinking and preparing.”
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