The Bank of England has scaled back its worst-case scenario for a no-deal Brexit to a loss of output to the U.K. economy of 5.5% of GDP, down from 7.5% in November, owing to preparatory work that has been made.
With the U.K. scheduled to leave the European Union on Oct. 31, and with no withdrawal agreement or future trade deal on the horizon, BoE Governor Mark Carney told a select committee of members of Parliament that there has been progress in preparations.
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"There's real progress on the ground, there's real progress in the financial sector. That has some knock-on to confidence. All of that adds up to 2.5-3% of GDP that the economy would not lose," Carney said.
However, the softer-than-predicted global economy and impact on the U.K. economy "has taken back some of the benefits."
Traffic at ports
One of the principal areas of improvement was at U.K. ports, where the prospect of no deal is expected to slow progress of freight through customs barriers.
The bank had raised concerns about port and customs capacity, expecting in November that throughput at the U.K.'s major ports could be reduced by as much as 75%. Carney said the bank now expects that reduction to be "less than half," due both to work done in the U.K. and investment in Calais, France, the other side of the major artery of trade with Europe.
"Every 5% of capacity that comes through our major ports probably gives you back a quarter of a percent of GDP," Carney said.
Carney also pointed to work done to counter concerns surrounding derivatives trading in the City of London, with the bank coming to an agreement with the ECB to address issues surrounding clearing derivative trades. However, he noted the need to resolve cross-border derivatives totaling some £24 billion of uncleared contracts.
MPs are looking to push through a bill to force the U.K. government to seek a further extension to negotiations with the EU to enable more time to reach a deal. Carney said that with more time, the U.K. could further mitigate the impact. "There is more preparation that can be done both in terms of private and public," Carney said. "It stands to reason that if there was more time, more could be accomplished."
Flat UK growth
In his update, Carney said growth in the economy remained weak following negative growth of 0.2% in the second quarter, as auto production slowed and stock building — done in the first quarter ahead of the original Brexit deadline — was undone.
"If you look through the underlying trend our judgement is that the economy is growing very weakly, slightly positive, but close to zero," Carney said.

