Brexit could be an “acid test” for how the world economy might fare under the new rules of trade, according to Bank of England Governor Mark Carney.
“In many respects, Brexit is the first test of a new global order and could prove the acid test of whether a way can be found to broaden the benefits of openness while enhancing democratic accountability,” Carney said in a speech in London Tuesday. “Brexit could affect both the short and long-term global outlooks.”
With the clock ticking on the U.K.’s exit from the European Union, Carney also said it’s “in the interests of everyone, arguably everywhere” that a “Brexit solution that works for all is found in the weeks ahead.”
Central bankers across the globe have presented downbeat assessments of growth in recent months, with the BOE lowering its own forecasts just last week. The impact of a slowdown in China, uncertainty and rising tensions surrounding trade policy and corporate debt are all potential risks to global growth, Carney said.
A prolonged period of uncertainty over trade could undermine the worldwide expansion, Carney said, an effect that has already taken hold on the U.K. BOE officials said last week that Brexit uncertainty is cascading through the economy, rattling households and companies and bringing investment to a halt.
“It is possible that new rules of the road will be developed for a more inclusive and resilient global economy,” Carney said. “At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all. Concerns over this possibility are already impairing investment, jobs and growth, creating a dynamic that could become self-fulfilling.”
Still, the global expansion is “more likely than not” to stabilize eventually around a new modest trend, he said.