UK Edition
Carney warns trade war could 'shipwreck the world economy'
Mark Carney, the Governor of the Bank of England, believes that international trade tensions have conjured a storm which could "shipwreck" the world economy.
Mr Carney said that the rise of protectionism could trigger a new Cold War with high economic costs in a speech laden with disturbing seafaring metaphors.
The central bank chief said that negative market developments represented a “sea change” caused by increased fears about how a trade war might damage businesses.
He added: “Certainly the portents are worrying. The storm that the modern Prospero has conjured is having an impact.”
Mr Carney also warned that a new Cold War in trade would have a deep affect on the world economy. At the height of the historical Cold War, US-USSR trade was worth $2bn, he said, compared to US-Chinese trade now, which “clocks $2bn a day”.
If trade tensions persist over time, there is a high risk that protectionist moves “become the norm”, Mr Carney said.
It is too soon to say whether current trade tensions could “shipwreck the global economy or prove to be a tempest in a teacup”. How the situation plays out will have significant ramifications for prosperity and price stability in the UK, Mr Carney warned, suggesting that a dovish near-term response might be needed from central banks, in a worst case scenario.
The negative tone pushed sterling close to a six-month low against the dollar and euro.
The potential for a deepening of international trade conflict was underlined on Tuesday, when the White House threatened the EU with $4bn worth of tariffs on a range of political sensitive goods from olives to Scotch whisky amid a long-running spat over aircraft subsidies.
The conflict over state aid for competing aerospace manufacturers Boeing and Airbus has escalated ahead of a November deadline, when Washington could impose deeply damaging import levies on the EU's auto industry.
A temporary hiatus in the tit-for-tat trade war between the US and China is also unlikely to last long, analysts have warned.
Fresh alarm from Threadneedle Street over trade and Brexit comes as credit ratings agency Moody’s warned that a no-deal departure from the European Union could trigger a recession and a downgrade of the UK’s sovereign ratings.
Moody's also warned that a no-deal Brexit could put pressure on the UK's public finances, echoing remarks from Chancellor Philip Hammond.
The Chancellor told the Commons that a no-deal Brexit would wipe out any fiscal headroom in the UK, meaning there was "no money available longer-term for either tax cuts or spending increases."
His intervention, considered to be a side swipe at Tory leadership contenders' spending pledges, also added that Government analysis found a disruptive no-deal Brexit would cost the exchequer £90bn.