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Carney admits Brexit could be ‘smooth’ after all

Bank of England governor Mark Carney has acknowledged that the UK‘s divorce from the EU may yet proceed smoothly – and that it would mean a higher path for interest rates.

Mr Carney said there was also a “less optimistic” scenario for the economy, which would dampen the path for rates.

But his comments to the Commons Treasury Select Committee about a possible positive outcome to Brexit stand in stark contrast to the dire warnings he issued before the referendum that the UK could slip into recession.

Mr Carney said: “There are scenarios where this process proceeds relatively smoothly to an increasingly clear end point and that will be consistent with a higher path for interest rates.”

He said such a picture could emerge if the Government achieves its aim of a “bold, ambitious trade deal“.

This, alongside shared optimism from households and businesses, would see higher growth and inflation – and mean the Bank needing to lift interest rates “for the right reason”.

But he added: “There are other scenarios which would be less optimistic or less positive, which could mean that policy is on a lower path than that.”

Mr Carney was heavily criticised over the Bank’s warnings about how the Brexit vote might weigh on the economy – which has responded more robustly than expected.

But he argues that this response has been helped at least in part by the actions of the Bank in the wake of the referendum – when it cut interest rates to 0.25% and eased lending rules.

MPs also pressed Andy Haldane, the Bank’s chief economist, on his recent admission that the failure to predict the 2008 financial crisis was economists’ Michael Fish moment – comparing financial forecasting to the incorrect outlook by the weather presenter ahead of 1987’s big storm.

Mr Haldane acknowledged there were “some similarities” between economics and meteorology.

He said it was important to learn from when forecasts were wrong but warned that “errors will always be with us”.

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