Probability of No-Deal Brexit Has Decreased, Mark Carney Says

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(Bloomberg) -- Boris Johnson’s victory in last week’s general election means the possibility of the U.K. crashing out of the European Union has subsided, according to Bank of England Governor Mark Carney.

“The worst-case scenario is effectively a no deal, disorderly Brexit. The probability of that scenario has gone down because of the election result and the intention of the new government,” Carney said, speaking in a press conference after the publication of the central bank’s Financial Stability Report. “The scenario itself and the risks that we protect the system against has not itself changed, it’s just become less likely.”

Carney emphasized that the financial system is prepared for such an outcome, with the U.K.’s seven largest lenders all passing the bank’s latest stress test, showing they’re strong enough to continue lending even in a global downturn or in the event of Britain leaving the EU without a trade agreement.

Johnson has pledged to take the U.K. out of the bloc on Jan. 31, and there will then be just 11 months to conclude a new trade deal. That raises the prospect of a cliff-edge at the end of 2020, according to trade experts.

“What people would expect us to do is to continue to ensure that the system is ready, so that the financial system is not forming a constraint to whatever negotiations are under way or discussions are under way, but is part of the buffer for whatever happens,” Carney said.

Apart from Brexit, more medium-term risks to financial stability include corporate and household indebtedness, Carney said.

Carney said officials will provide a “high-level update” on the economy on Thursday, when policy makers are due to announce their latest interest-rate decision and publish their meeting minutes.

©2019 Bloomberg L.P.

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