Whoever succeeds Mark Carney as the Governor of the Bank of England will have to continue to steer British monetary policy under the likely scenario that the United Kingdom and EU may very well be headed towards a “no-deal” divorce in the coming months.
If, as expected, the two sides fail to agree on a framework relationship once Britain officially leaves the bloc in October, the new head of the Bank of England will have to find a way to wade through the contentious issue of automatic tariffs on EU goods,
Under the current rules, the UK is obliged to extend the same trade regime to all third countries if the tariffs are reduced vis-a-vis the United Kingdom.
Boris Johnson, the presumed frontrunner to become the next British prime minister, has argued that there will be no tariffs or quotas in the event of a no-deal Brexit, evoking the GATT 24 clause, or the most favoured nation principle. Carney counters that this clause would only apply if the UK signed a Withdrawal Agreement and, therefore, has an interim agreement.
“The GATT rules are clear . . . GATT 24 applies if you have a withdrawal agreement, not if you’ve decided not to have an agreement, or you have been unable to come to an agreement,” Carney has argued.
In response to the British position, EU Trade Commissioner Cecilia Malmstrom has also made clear that the UK should not count on the willingness of the EU to sign onto a temporary trade deal if the UK walked away with no deal.
The question now is whether the next Bank of England Governor can lay claim to an independent monetary policy in a polarised political environment. Chancellor Philip Hammond now has to choose between 30 candidates, but he may defer this decision as he is part of an outgoing administration.
In all likelihood, the next prime minister and his new chancellor will need to make a binding and by now politicised decision. According to the Financial Times, the front-runners for the top job include Andrew Bailey, chief executive of the Financial Conduct Authority, Raghuram Rajan, former governor of the Reserve Bank of India, Shriti Vadera, chair of Santander UK, Minouche Shafik, a former BoE deputy governor, and current bank deputy governors Ben Broadbent and Jon Cunliffe.