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Mark Carney, Bank of England governor, has delivered a "chilling" warning to Theresa May's cabinet that a no-deal Brexit could lead to economic chaos, including a property crash that could see house prices fall by a third.
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-criticized 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 that the bank 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.
One observer of the meeting in Downing Street said: "All of the predictions were grim and the numbers were chilling. Carney was listened to respectfully. He took a few questions afterwards, but none of them were hostile."
The BoE has already forced UK banks to run a stress test on the same "severe, but plausible scenario" of the damaging economic effects of a disorderly Brexit.
But many Tory Euroskeptic MPs will ridicule the governor's warnings, arguing that both the BoE and Treasury have miscalculated the economic consequences of Brexit in the past.
Jacob Rees-Mogg, leader of the Euroskeptic European Research Group, last month called Mr Carney, who this week agreed to stay in post through Brexit until January 2020, "the high priest of Project Fear".
Among Mr Carney's most stunning warnings was that house prices would be 35 per cent lower than would otherwise be the case three years after a disruptive no-deal Brexit — which would assume a breakdown in trading relations with the EU.
The property crash would be driven by rising unemployment, depressed economic growth, higher inflation and higher interest rates, Mr Carney warned.
The governor said that unlike the BoE's rate cut in 2016, this time the shock to Britain's economy would come from disruption on the supply side, as trading relations between the UK and EU took a hit.
"He explained that in those circumstances, there would be a contraction of supply," said one witness to the cabinet talks. "If you cut rates you would end up with higher inflation."
Last week, the governor made similar warnings in public, telling MPs on the Treasury committee that in a disorderly no-deal Brexit, "the real income squeeze will return for households across the country for a few years".
Mr Hammond said the Treasury would be constrained in its ability to tackle the crisis by boosting spending, noting the country was still recovering from the aftermath of the 2008 crash and questioning the effectiveness of a fiscal stimulus in one country.
A Downing Street spokesman said ministers fully backed the Brexit proposals set out by Mrs May in the Chequers white paper and were confident of success in the negotiation. A Bank of England spokesperson declined to comment.
There was agreement at cabinet that a no deal outcome was "unlikely but possible". The spokesman said that Whitehall departments had "significantly ramped up" their no-deal planning in recent weeks.
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