(Bloomberg) -- The Bank of England wasn't kidding when it warned of possible interest rate increases if the U.K. crashes out of the European Union without a deal, Governor Mark Carney said on Friday.
Carney said on Thursday that a no-deal, no-transition Brexit could trigger a supply side shock of a rare, once-in-a-generation magnitude, pushing up inflation and prompting tighter monetary policy. His comments were received with skepticism, with economists saying the chaos of a no-deal Brexit would make raising interest rates near impossible.
“We don't bluff,” Carney said in a television interview. “Our mandate is to make sure that inflation grows on average at about 2 percent a year, and we'd do what is necessary to achieve that -- support jobs and activity in the economy.”
Read More: Carney Rate Hike Warning on No-Deal Brexit Draws Skepticism
The productive capacity of Britain's economy would be reduced for a period of time in the event of a no-deal Brexit, with imports becoming tougher to deliver and people switching jobs, Carney said. That's be a “very unusual” situation, which may dictate interest rate movement in either direction, he said.
Earlier this week, S&P said a no-deal Brexit would result in a recession for as long as five quarters in the U.K., with the economy contracting by 1.2 percent in 2019 and 1.5 percent in 2020.
To contact the reporter on this story: Anurag Kotoky in London at akotoky@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, David Goodman
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