Brexit: no deal with EU worse for British economy than Covid-19, says Bank of England governor

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“I think the long-term effects … would be greater than the long-term effects of Covid,” Bailey said on Monday in response to a question from a lawmaker about what would happen if the UK government did not strike a deal before the deadline of December 31.

“It takes a lot longer for what I call the real side of the economy to adjust to the change in openness and the change in the profile of trade,” Bailey added in testimony to the committee. Treasury of Parliament.

The UK left the European Union in January. But the £ 670 billion ($ 895 billion) trade relations have not been affected so far due to a transition period which expires at the end of this year. Negotiators tried to strike a deal that will allow trade to continue without tariffs. But progress has been slow and EU chief negotiator Michel Barnier warned on Monday that “fundamental differences” have yet to be resolved.

UK business groups are pushing Prime Minister Boris Johnson to strike a deal, saying many businesses have been stretched to breaking point by the coronavirus and another round of lockdowns. Without a deal with the EU, UK-based companies face high tariffs, quotas and other barriers to doing business with the country’s largest export market from January 1.

The Bank of England forecast earlier this month that the UK economy will contract by 11% in 2020. Economists are worried about the “scars” caused by the coronavirus, but Bailey said on Monday he was optimistic as to the economy’s ability to recover from the crisis relatively quickly. pandemic.

A change in the terms of trade with the European Union would produce more lasting upheavals, he suggested, comparing this result to the modeling carried out by the central bank decades ago, showing that it would have been necessary to the British economy between 30 and 40 years old to adjust if policymakers had decided to lower the pound sterling and switch to the euro.

The UK government and the Bank of England have triggered hundreds of billions of pounds of stimulus to help cushion the blow to businesses and workers from the pandemic.

Earlier this month, the central bank announced it would increase its purchases of UK government bonds from £ 150 billion ($ 195 billion) to £ 875 billion ($ 1.1 trillion), and Finance Minister Rishi Sunak extended a leave program until March 2021. The government will pay 80% of the wages of employees of companies forced to close, capped at £ 2,500 ($ 3,270) per month.

Sunak said on Sunday that the country’s economic situation presented “a very difficult picture.”

“The economy is under significant stress,” he told the BBC. “We’ve seen it especially in the job market, with people’s jobs. We know that three-quarters of a million people have tragically lost their jobs already with forecasts of more to come. The loan… is at odds. record highs in peacetime and more stress to come. “

Sunak will take stock of the economic situation on Wednesday and outline his borrowing and spending plans after the pandemic.

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