UK head banker warns of Brexit hit on house prices

Bank of England Governor Mark Carney on Thursday reportedly warned UK ministers that the impact of a no-deal (or 'hard') Brexit could be as bad as the 2008 financial crisis, with house prices falling by up to 35 percent over three years in a worst case scenario.

As the UK prepares to leave the EU next March such an exit would lead to higher unemployment, a fall in the pound, drive up inflation and in turn interest rates and many homeowners could be left in negative equity, The Financial Times reported Carney as saying.

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"Our job is to prepare for the worst, not hope for the best," Carney wrote in an opinion piece on Friday for The Daily Mail. "By identifying the risks and coming forward with solutions, the bank is working hard every day to get our financial system in shape for Brexit, whatever form it takes."

A no-deal Brexit means a move from seamless trade with the rest of the EU to customs arrangements set by the World Trade Organization for external states with no preferential deals

The bad old days

UK house prices fell 19 percent during the 2008 financial crisis, before rising 38 percent from their low in March 2009 to June 2016, the month of the Brexit referendum and in the two years since prices have risen by a further 7 percent, according to ONS data.

The world's fifth-largest economy is heavily indebted and housing has traditionally been used as a form of asset investment by ordinary Britons borrowing from the banks.

Carney, whose term of office has been extended until the end of January 2020 to deal with Brexit disruptions, said that if Prime Minister Theresa May struck a Brexit deal on the basis of her 'Chequers proposals' then the economy would outperform current forecasts, The Financial Times reported.

Downing Street prepares

After the Downing Street meeting, the Prime Minister's spokesman said ministers remained confident of a Brexit deal, but had agreed to "ramp up" their no-deal planning. "As a responsible government, we need to plan for every eventuality. The Cabinet agreed that no-deal remains an unlikely but possible scenario in six months' time," the spokesman said.

The UK is due to leave the EU on March 29, but there is no full exit agreement between Brussels and London as Brexit Secretary Dominic Raab was due to speak by phone to EU chief negotiator Michel Barnier on Friday.

Meanwhile, the opposition Labour Party said on Friday it will vote against any Brexit deal reached by May. Emily Thornberry, Labour's shadow foreign secretary, told The Financial Times the party aims to force May from office before Christmas. "A workable deal is just not going to happen," she said. 

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Finance Minister Phillip Hammond said on Friday the Treasury would not be able to tackle the crisis by boosting spending, adding that the country was still recovering from the aftermath of the 2008 crash.

Stress tests

But some have suggested Carney was not forecasting the crash, merely saying what the Bank of England would do in the event of such a fall occuring and was briefing the Cabinet on what preparations the bank was making if that were to happen.

The bank carried out a stress test last November, deliberately setting the parameters beyond what might reasonably be expected to occur and all the major banks passed.

"Carney has made himself a laughing stock in the City with such an outrageous warning," Richard Tice, a Brexit supporter who is also co-chair of the Leave Means Leave group, told the news agency Reuters. "Carney is a political central banker who is talking down the country and talking down Brexit in the hope that people accept a really bad Brexit deal — May's Chequers deal."