Friday2 August 2019 ★ FINANCIAL TIMES 3NATIONAL
DELPHINE STRAUSSCentral banks around the world are
gearing up for a fresh round of monetary
stimulus — but the Bank of England con-
firmed yesterday it had no plans to join
the global rush to cut interest rates.
Although it shares the gloomy view of
US and European policymakers on the
weakening outlook for global growth,
the Monetary Policy Committee voted
unanimously to leave interest rates on
hold. And although the economy is
clearly suffering from the strains of
acute Brexit uncertainty, policymakers
signalled interest rates would need to
rise, as soon as those uncertainties were
resolved.
Coming a day after the US Federal
Reserve’s first rate cut in a decade, and
with the European Central Bank poised
to launch fresh stimulus in the autumn,
the contrast could not be clearer.
In normal circumstances, this diver-
gence in the outlook for interest rates
would swiftly show up in currency mar-
kets. But the BoE’s message had little
effect on markets, with sterling ending
the day close to 30-month lows.
“Markets have been deaf to the MPC’s
message of late and this is unlikely to
change,” said Andrew Goodwin at con-
sultancy Oxford Economics. The reason
is simple: investors are fixated on the
increasing risks of a no-deal Brexit, but
the BoE’s forecasts do not reflect this
risk, and the MPC has not given a collec-
tive view on what it would do if the
worst-case outcome did materialise.
Mark Carney, BoE governor, defended
this position yesterday, saying the BoE
had taken action to ensure the core of
the financial system could survive a no-
deal shock, but that government policy
was to pursue a deal, and any change in
that assumption was for politicians.
He argued the MPC could not give
useful guidance on how it would
respond to a chaotic Brexit, because it
would be a shock to both demand and
supply, in which it might not be possibleto cut interest rates without fuelling
inflation.
But economists accused the bank of
ducking the most pressing question fac-
ing policymakers. “It seems to me that
government policy is not to leave with a
deal — it’s to leave somehow. The BoE
ought to provide scenarios to reflect
that,” said Jagjit Chadha, director of the
National Institute for Economic and
Social Research. Peter Schaffrik at RBC
Capital Markets said Mr Carney had
been “left sitting on the fence...
defending a Brexit assumption that
looks increasingly unrealistic”.
Paul Hollingsworth, economist at
BNP Paribas, said since several MPC
members had already signalled they
would be more likely to cut interest
rates after a no-deal outcome than to
raise, the lack of guidance “suggests
there is no consensus on the committee
about how it should respond”.
The BoE’s central forecasts, premised
on a smooth Brexit that would boost the
economy, show inflation overshooting
its target by a significant margin, rising
to 2.4 per cent on a three-year horizon.
The BoE has sharply cut its forecasts for
growth this year and next, to 1.3 per cent
in each year, saying underlying growth
has slowed below its potential rate, but
it now believes the rebound that would
follow a Brexit deal will be even stronger
than its May forecasts suggested.
However, these forecasts are of little
practical use because they are built on
current asset prices. Investors, who see a
rising chance of a no-deal Brexit, have
been selling the pound and betting the
BoE will cut interest rates by the end of
the year. These market moves result in a
higher forecast for inflation.
The bank has tried to deal with the
problem by setting out alternative pro-
jections, showing what would happen to
inflation if a Brexit deal led markets to
take a more optimistic economic view. It
said that although growth and inflation
would be lower in these scenarios, there
would still be significant excess
demand, fuelling inflation, after any
orderly form of Brexit deal. It therefore
thinks interest rates will need to rise,
“assuming a smooth Brexit and some
recovery in global growth”.
Some economists said that despite
this relatively hawkish language, the
BoE in fact appeared to have become
more dovish since it last set out fore-
casts in May. Kallum Pickering at Beren-
berg said the conditions for higher rates
— a smooth Brexit and a stronger global
economy — were “two big bets”.
Yael Selfin at KPMG and Paul Dales of
consultancy Capital Economics noted
inflation in fact remained close to target
in the BoE’s alternative scenarios.
Fed chief’s challengepage 6
Banks fear being big loserspage 23BoE in no mood
to join rate-cut
bandwagon
Carney defends assumption of Brexit deal
being done but is accused of sitting on fence
MEHREEN KHAN— BRUSSELS
GEORGE PARKER— LONDONBoris Johnson’s new envoy to Brussels
has told EU counterparts that the UK
will leave the bloc on October 31 “what-
ever the circumstances” in the first
meeting between the new govern-
ment’s team and the European Com-
mission.David Frost, the government’sBrussels
“sherpa” — an emissary who prepares
summits for heads of government —
held three brief meetings with senior
officials in the commission on Wednes-
day andyesterday to repeat the UK’s
demand to remove the Irish backstop or
risk a no-deal Brexit in 90 days’ time.
“[Mr Frost] explained the UK posi-
tion, as set out by the prime minister,
that the UK would leave the EU on 31
October whatever the circumstances,”
said aUK government spokesman.
Mr Frost’s arrival in Brussels marks
an abrasive new phase in EU-UK rela-
tions as Mr Johnson “turbocharges”
Britain’s no-deal planning. Sajid Javid,
chancellor of the exchequer, yesterday
announced £2.1bn of new funding for a
no-deal exit.
The EU has held firm on the contents
of the withdrawal agreement, negoti-
ated by Mr Johnson’s predecessor,
Theresa May, insisting it will not reopen
the terms of the so-called backstop,
which seeks to avoid a hard border on
the island of Ireland. Mr Johnson hasdescribed it as “anti-democratic” and
has said he wants it “abolished”.
“Both sides reiterated their positions,”
said a commission spokeswoman.
Mr Johnson and Jean-Claude Juncker,
outgoing president of the commission,
are expected to have their first meeting
on the sidelines of a G7 summit in Biar-
ritz this month. Germany’s Angela Mer-
kel and France’s Emmanuel Macron will
also be in attendance at the G7.
EU officials do not expect Mr Johnson
to arrive in Brussels before the Conserv-
ative party’s conference in the autumn,
setting up a showdown with EU leaders
at a summit in mid-October, just weeks
ahead of the planned exit date.
“Nobody knows what Boris is up to,”
said one senior diplomat, who predicted
any no-deal scenario could be “man-
aged” or chaotic depending on Mr John-
son’s choices.
Mr Frost has replaced Olly Robbins,
drawing a line under his two-year spell
as Mrs May’s Europe adviser and chief
Brexit negotiator, during which time
Brexiters accused him of being part of a
pro-EU establishment plot. Mr Robbins
spent this week untangling his final
links to the Brexit process before leaving
on a family holiday, telling friends he
was relieved to be out of the political line
of fire. Mr Robbins was an architect of
the “Chequers plan”, which envisaged
Britain retaining close economic links
with the EU.
Philip Stephenspage 11Brussels
Johnson ‘sherpa’ reaffirms
plan for October EU divorce
The BoE downgraded its growth
forecasts for this year and next
Annual change in GDPSource: Bank of England
Forecasts based on market expectations
of interest ratesActual
August forecast
May forecastThousands of residents in a
Derbyshire village were evacuated
from their homes yesterday after
heavy rains damaged a dam wall
around Toddbrook Reservoir.
Images showed a large hole in the
wall and police were worried it would
collapse.
Whaley Bridge residents were told
to head to a local school for safety
due to the “unprecedented, fast-
moving, emergency situation”.
The Environment Agency issued a
severe flood warning, suggesting a
danger to life, covering the river Goyt
at Whaley Bridge. It said the river
could “rise rapidly” due to water
rushing in from the reservoir.
Paul Nash, who lives in the village,
said: “[I’m a] bit surprised to be
honest, never thought it would
happen. If the whole dam goes, it’s
going to cause absolute chaos.
Probably the village will go... the
river Goyt goes straight through the
village centre.”PADam busted
Villagers
evacuated
Phil Nobel/Reuters
РЕ
ЛИЗПthe terms of the so-called backstop,
Пthe terms of the so-called backstop,
which seeks to avoid a hard border onwhich seeks to avoid a hard border onПthe terms of the so-called backstop,the terms of the so-called backstop,the terms of the so-called backstop,the terms of the so-called backstop,ООДД
ГTheresa May, insisting it will not reopen
ГTheresa May, insisting it will not reopen
the terms of the so-called backstop,the terms of the so-called backstop,ГTheresa May, insisting it will not reopenTheresa May, insisting it will not reopenООТated by Mr Johnson’s predecessor,
Тated by Mr Johnson’s predecessor,
Theresa May, insisting it will not reopenTheresa May, insisting it will not reopenТОated by Mr Johnson’s predecessor,
Оated by Mr Johnson’s predecessor,
Theresa May, insisting it will not reopenTheresa May, insisting it will not reopenОated by Mr Johnson’s predecessor,ated by Mr Johnson’s predecessor,ВИof the withdrawal agreement, negoti-
Иof the withdrawal agreement, negoti-
ated by Mr Johnson’s predecessor,ated by Mr Johnson’s predecessor,Иof the withdrawal agreement, negoti-of the withdrawal agreement, negoti-ЛЛ
ated by Mr Johnson’s predecessor,Л
ated by Mr Johnson’s predecessor,of the withdrawal agreement, negoti-of the withdrawal agreement, negoti-ААГThe EU has held firm on the contents
ГThe EU has held firm on the contents
of the withdrawal agreement, negoti-of the withdrawal agreement, negoti-ГThe EU has held firm on the contentsThe EU has held firm on the contentsThe EU has held firm on the contentsThe EU has held firm on the contentsРРУУ
The EU has held firm on the contentsThe EU has held firm on the contentsПППАannounced £2.1bn of new funding for a
Аannounced £2.1bn of new funding for a"What'sTheresa May, insisting it will not reopen"What'sTheresa May, insisting it will not reopen
the terms of the so-called backstop,
"What'sthe terms of the so-called backstop,
which seeks to avoid a hard border onwhich seeks to avoid a hard border on"What'sNews"of the withdrawal agreement, negoti-News"of the withdrawal agreement, negoti-
ated by Mr Johnson’s predecessor,
News"ated by Mr Johnson’s predecessor,
Theresa May, insisting it will not reopenTheresa May, insisting it will not reopenNews"VK.COM/WSNWSated by Mr Johnson’s predecessor,VK.COM/WSNWSated by Mr Johnson’s predecessor,
Theresa May, insisting it will not reopenVK.COM/WSNWSTheresa May, insisting it will not reopen
the terms of the so-called backstop,VK.COM/WSNWSthe terms of the so-called backstop,
which seeks to avoid a hard border on
VK.COM/WSNWSwhich seeks to avoid a hard border on
the island of Ireland. Mr Johnson hasthe island of Ireland. Mr Johnson hasVK.COM/WSNWS