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Carney warns of property crash in no-deal Brexit

Bank of England governor Mark Carney warned that house prices could fall by a third in the event of a no-deal Brexit, telling government ministers on Thursday that the Bank would not be able to shore up the economy by cutting interest rates as it did after the EU referendum. He said that the economic chaos that would follow a disorderly Brexit would include mass emigration, leading to more people leaving the country than arriving for the first time since 1994.

He summed up the damage by saying that inflation, unemployment and interest rates would all rise, causing house prices to be 35.0% lower in three years’ time than would otherwise be the case. The predictions assume a breakdown in trading relations with the EU which would lead to a contraction in the supply of goods and services into the country.

The week had started well. On Monday the Office for National Statistics (ONS) reported GDP growth in the three months to July rising at its best pace in a year. The new rolling measure of three-month growth was up by 0.6%, compared to 0.4% in the previous quarter, the best result since 2017. The news appears to justify the decision to raise interest rates in August, although most analysts do not now expect another rate rise until after Brexit uncertainties have passed.

However, as ever, the data is open to interpretation. It was somewhat flattered by consumer spending, much of which was on food and drink and other summer-related activities; it does not necessarily point to a sustained trend. Meanwhile, manufacturing growth remains poor. Construction growth was also flattered by a spurt at the beginning of the quarter as companies were scrambling to catch up on projects delayed by the poor winter weather.

The ONS released more positive news on Tuesday as unemployment remained at 4.0% in the three months to July, but annual wage growth accelerated from 2.7% to 2.9% in the same period. After factoring in inflation, however, wage growth was only 0.2% - an historically low level especially given such high employment. Adjusted for inflation, regular pay was still below the peak reached just before the financial crisis.

In addition, there was a big move from part-time to full-time work, with full-time positions increasing by 100,000 in the quarter. But there was a slowdown in employment growth (the number of new positions being filled), with a rise of just 3,000 compared to forecasts of 28,000.

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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