A pro-EU demonstrator holds up a placard outside the Houses of Parliament | Adrian Dennis/AFP via Getty Images
5 levers to tackle the economic shock of no-deal Brexit
None of the weapons at the UK’s disposal comes without downsides.
Updated 2/13/19, 4:10 AM CET
It’s 11:01 p.m. in London on Friday, March 29 and it’s no deal. Britain will need to take immediate action to try to shield the economy from shocks, probably before markets open, on April Fools’ Day.
Here we take a look at some of the emergency levers that U.K. policymakers can pull.
Britain’s import-dependent economy has never looked so vulnerable in peacetime. An inflation bomb is set to explode. A diving pound and tariffs on key products from the EU such as food would hit consumers hard. Britain runs a hefty trade-in-goods deficit (of about £130 billion in 2016 and 2017), and sources about half of its food from abroad.
Policymakers will have to make hard choices on how to manage the currency — particularly on whether to hike or cut interest rates — when core elements of the economic model will be under fire. Markets have traditionally been tolerant of U.K. debt and deficit levels because the country was a prime venue for foreign direct investment from big companies such as Airbus and Nissan, but these are now in question.
As Bank of England Governor Mark Carney put it, Britain relies on the “kindness of strangers.” This has been drying up because the U.K.