Mark Carney has urged politicians to find a Brexit solution as he warned over economic risks posed by a slowing Chinese economy, protectionism and “de-globalisation”.
With more than a month to go until Britain’s scheduled departure from the European Union, the Bank of England governor said: “It is in the interests of everyone, arguably everywhere … that a Brexit solution that works for all is found in the weeks ahead.”
In a speech at Frobisher Hall in London, Mr Carney told City figures that business investment in the UK “has fallen 3.7% over the past year despite the ongoing expansion, high business profitability and accommodative financial conditions”.
“With fundamental uncertainty about future market access, UK investment hasn’t grown since the referendum was called and has dramatically underperformed both history and peers.”
He described Brexit as an “acid test” of whether a way can be found to broaden the benefits of economic “openness while enhancing democratic accountability”.
Mr Carney said trade tensions and Brexit are “manifestations of fundamental pressures to reorder globalisation” and that Britain’s divorce from the EU was a test in trade uncertainty, which if prolonged, could undermine global expansion.
“It is possible that new rules of the road will be developed for a more inclusive and resilient global economy. At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all.
“Concerns over this possibility are already impairing investment, jobs and growth, creating a dynamic that could become self-fulfilling.”
His comments come days after the central bank slashed its growth forecast for the UK economy and warned about the mounting risk of a recession in the event of a no-deal Brexit.
Mr Carney also said that slowing global growth has been hampered by “rising trade tensions and growing policy uncertainty”, pointing to the trade dispute between the US and China.
“Global economic policy uncertainty is at record highs. And protectionist rhetoric is becoming reality, with the United States raising tariffs on a range of imports from its main trading partners, and some retaliating in kind.
“If all measures contemplated are implemented, average US tariffs will reach rates not seen in half a century.”
He added that “contrary to what you might have heard, it isn’t easy to win a trade war”.
“The larger and the more permanent the disruption to global trade – the greater the de-globalisation —the greater the reduction in both activity and supply capacity of economies.”
The Bank believes an increase of 10 percentage points on import tariffs charged by the US would hit the county’s gross domestic product (GDP) by 2.5% and reduce world output by 1%.
Meanwhile a downturn in the Chinese economy, he said, “would test the resilience” of other countries.
The Bank estimates that a 3% drop in Chinese GDP would take 1% off global activity, including 0.5% each for UK, US and eurozone GDP.