U.S. Markets close in 1 hr 57 mins

Bank of England's Mark Carney slams Boris Johnson's Brexit plans

Tom Belger
Finance and policy reporter
Boris Johnson. Photo: Simon Dawson/Pool via AP

The governor of the Bank of England has slammed Boris Johnson’s Brexit trade deal plans, wading into the final round of the Tory leadership contest.

Mark Carney challenged claims by the frontrunner to be the next UK prime minister that Britain could avoid significant disruption to trade from new tariffs if it left the EU without a deal.

Johnson had used the BBC’s leadership debate this week to highlight what some Brexiteers call a “secret weapon” of a clause in world trade rules to secure continued free trade even if the UK cannot secure an agreement.

But Carney told the BBC on Friday morning that the UK needed “absolute clarity” that a no-deal Brexit would mean new tariffs.

READ MORE: The big hole in Boris Johnson’s Brexit plans

He said the EU would have to apply the same higher tariffs to Britain as other non-EU states, under Article 24 of global trade rules set out in the General Agreement on Tariffs and Trade (GATT).

Such new tariffs could significantly undermine trade flows in and out of Britain, which are currently frictionless with the EU.

‘No deal means no deal’

“If we move to no-deal, no deal means no deal,” said Carney on the Today programme after giving a speech at Mansion House last night.

“The GATT rules are clear. GATT 24 applies if you have an agreement, not if you’ve decided not to have an agreement with the European Union, or been unable to come to an agreement.

“Not having an agreement with the European Union means there are tariffs, automatically, because the Europeans have to apply the same rules to us as they apply to everyone else.

“It means there is a substantial change in the relationship with the European Union. Now that be the choice the country takes, but it should be a choice that’s taken under absolute clarity of what that means.”

Governor of the Bank of England Mark Carney during the annual Bankers and Merchants Dinner at Mansion House in London.

No free trade until the UK has a deal

Johnson had said Article 24 of global trade rules permitted continued free trade without tariffs while the UK government negotiated its future relationship.

But several experts have previously warned short-term free trade is only allowed if the two sides already have a detailed plan and timetable for a future agreement.

Carney said the secretary of state for international trade Liam Fox, a leading Brexiteer, and the director general of the World Trade Organisation had both agreed this was the case.

The UK has not even begun negotiating a future agreement with the EU, with Brussels limiting talks since the UK voted to leave to the terms of the divorce.

READ MORE: Boris Johnson ‘plans two-year Brexit transition’

Negotiating key planks of the future relationship by 31 October appears an impossible task, as many trade deals take years to negotiate. Britain would also need EU approval for a smooth transition under Article 24.

Countless warnings by experts suggest Britain would therefore face catastrophic economic consequences if it left in October without agreement, and Article 24 could not be relied on to smooth Brexit in the near-future at least.

Johnny Mercer, a Conservative MP, faced a grilling from BBC presenter Justin Webb as he defended Boris Johnson on air.

Pressed by Webb to admit the plans were “magical stuff,” Mercer said that the public were “fed up” of hearing in the media that things were impossible.

READ MORE: Why a no-deal Brexit could mean twice the bureaucracy for manufacturers