The Bank of England’s governor has warned the cabinet that a chaotic no-deal Brexit could crash house prices and send another financial shock through the economy.
Mr Carney told ministers that in the scenario of a disorderly Brexit, the BoE would not be able to avert a crisis by cutting interest rates — as it did after the 2016 referendum vote — and that inflation and unemployment would rise.
However, he boosted Mrs May’s position when he said that if she struck a Brexit deal based on her much-criticised Chequers exit plan presented to Brussels in July, the economy would outperform current forecasts because it would be better than the bank’s assumed outcome.
Cabinet ministers listened in silence as the governor gave his detailed assessment of the risks of an ill-tempered no-deal exit, saying the BoE assumed that Britain would see net emigration for the first time since 1994.
Mrs May had intended her three-and-a-half hour cabinet meeting to review no-deal contingency plans and to send a signal to the EU that Britain was prepared for the prospect of Brexit talks failing.
Instead, Mr Carney and Philip Hammond, chancellor, joined forces to deliver a blow-by-blow account of why such a scenario would be economically damaging and that there would be little the BoE or Treasury could do about it.