The Mises Institute
March 1, 2019
With scarcely a month left until the date Britain is scheduled to leave the European Union, the monetary czars at the top of the world’s central banks are increasingly coming to terms with the fact that a ‘hard’, no-deal Brexit now seems to be the most likely outcome.Given Parliament’s recent, overwhelming rejection of Theresa May’s long-negotiated Brexit deal, and the clock rapidly running down on any hope for renegotiation, it looks like the type of Brexit looming on the horizon will be verging on a central banker’s worst nightmare: an abrupt disruption to existing institutions, with all the economic uncertainty that entails, rather than the slow, politically-managed transition period May and others were hoping for.
As the formerly remote prospect of a no-deal Brexit draws ever closer, central banks around the world have begun laying out their plans to shield their respective economies from the turmoil many mainstream analysts are expecting. Little wonder that many of these contingency plans centre around the most important, and most dangerous, policy tool in the central banker’s arsenal: their ability to inflate the money supply and keep interest rates artificially low.
In the UK itself, monetary policymakers at the Bank of England have indicated that a no-deal Brexit could lead to a reversal of the Bank’s current gradual normalization of interest rates. After having dropped the important ‘Bank rate’ of interest to the historic low of 0.25% in the aftermath of the June 2016 Brexit referendum, the Bank of England has subsequently raised it again twice, to its current level of 0.75%, by far its highest since the official end of the Great Recession in 2009. However, Gertjan Vlieghe, a member of the Bank’s rate-setting monetary policy committee, recently announced that “in the case of a no-deal scenario I judge…