Bank of England warns of economic shock if Brexit talks fail

LONDON (AP) — The Bank of England warned Thursday that Britain could suffer an economic shock if it crashes out of the European Union without a deal, saying it could cause gridlock at ports and an inflation-rearing fall in the pound that could require higher interest rates.

After the bank decided to keep its main rate at 0.75 percent, Governor Mark Carney said the British economy’s supply capacity — that is, what the country is able to produce — could “fall sharply” in case of a disorderly Brexit.

“An abrupt and disorderly withdrawal could result in delays at borders, disruptions to supply chains, and more rapid and costly shifts in patterns of production, severely impairing the productive capacity of some U.K. businesses,” he said.

Carney said policymakers would have to try to work out which of the changes were short-term — caused by logistical challenges related to the end of free movement of goods and services, for example — and which would affect the economy in the longer-term.

The bank could be forced to raise interest rates, depending on how the pound reacts, he said. After Britain voted to leave the EU in June 2016, the currency fell 15 percent against major currencies, stoking inflation by making imports more expensive.

The bank, which is tasked with keeping inflation stable, is predicting another fall in the pound if Britain leaves the EU without a deal and no transition to smoothen out the exit.

A summit of EU leaders in October was supposed to be the moment by which to reach a Brexit deal.

Now officials are talking about a summit in December as the last chance for a deal.

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