Bank of England Governor Mark Carney warns the US China trade war could ‘shipwreck the global economy’ as he claims a No Deal Brexit is a ‘possibility but not a certainty’
- Mr Carney says it is too soon to tell if trade war will ‘shipwreck’ world economy
- He says global trade war and No Deal are ‘possibilities’ but ‘not certainties’
- He says trade tensions ‘more pervasive, persistent and damaging’ than expected
Increasing trade tensions between the US and China and the threat of a No Deal Brexit mean the ‘portents are worrying’ for the global economy, Mark Carney has warned.
The Governor of the Bank of England said it was too soon to tell whether the trade war would ultimately ‘shipwreck the global economy or prove to be a tempest in a teacup’.
But he said the row between Beijing and Washington was already ‘having an impact’ as he suggested the world economy was in a precarious position.
However, despite cautioning that ‘trade tensions could be far more pervasive, persistent and damaging than previously expected’ he struck a more optimistic tone as he said a global trade war and a No Deal Brexit remained ‘possibilities’ but ‘not certainties’.
Mr Carney also claimed that Brexit uncertainty had caused a ‘12% hit to UK business investment’.
The outgoing governor, who is due to leave his role at the start of next year, told the Local Government Association annual conference and exhibition in Bournemouth today there were ‘growing concerns over the impact of rising trade tensions and policy uncertainty’.
‘Certainly the portents are worrying,’ he said.
‘The storm that the modern Prospero has conjured is having an impact.
‘Over the past year, the global economy has shifted from a robust, broad-based expansion to a widespread slowdown, with the proportion of the global economy growing above trend falling from four fifths to one sixth.’
Mark Carney, the Governor of the Bank of England, said a No Deal Brexit was a possibility but not a certainty as he said the US China trade war was having a negative impact on the world economy
Donald Trump and Beijing have been going tit-for-tat imposing increased tariffs on their respective imports
Mr Carney said that US President Donald Trump’s decision to impose further tariff increases on imports from China and Beijing’s decision to respond in kind, as well as the threat from Washington to increase tariffs on car imports from the EU, did not bode well for the future.
‘The latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected,’ he said.
‘The rationales for action are broadening. Initially motivated by concerns over bilateral trade imbalances, trade measures are now being taken in response to issues ranging from immigration to Intellectual Property protection to control of the technologies underpinning the Fourth Industrial Revolution.’
Mr Carney warned the ‘the intensification of trade tensions’ had increased the risk of slowing global growth and harming the UK economy.
He said: ‘The direct effect of the measures announced thus far would have only a marginal impact on the UK, of -0.1% of GDP.
‘That would rise to -0.4% if all measures, including auto tariffs, were implemented.
‘If there were a Brexit-style business confidence shock in the US and China, the total impact on the UK would start to be material, rising above -1% of GDP.’
He added: ‘As I have sought to illustrate, whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.’
Mr Carney said the outlook in Britain could be much clearer in the shorter term because by the end of October businesses should know what is going to happen with Brexit.
He said: ‘If Brexit progresses smoothly, we expect that the current heightened uncertainties facing companies and households will fade gradually, business investment will rebound, the housing market to rally, and consumption to grow broadly in line with households’ real incomes.
‘This would accelerate economic growth, strengthen domestic inflationary pressures, and require limited and gradual increases in interest rates in order to return inflation sustainably to the 2% target.’
He added: ‘For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties.’