Mark Carney, Governor of the Bank of England, has caused controversy with a suggestion that a no-deal Brexit could see UK property prices fall by 35% over the next three years. This is not the first time Mark Carney has been downbeat on Brexit but this is by far and away his most damaging prediction to date. However, if prices “could” fall by 35%, what is the best outcome? Might we see prices rise by, for example, 10%?
Guessing game
The reality is that in the unlikely event that the UK government is unable to agree a Brexit deal with the European Union there will be some concern and confusion. However, the idea that trade will suddenly stop overnight is something of a red herring. The UK was simply revert to World Trade Organisation (WTO) rules which many believe would actually assist the UK economy by allowing the government to negotiate individual trade deals with other countries around the world. A strong future tie with the European Union may well reduce the UK government’s opportunities to take more control and increase worldwide trade.
If you cast your mind back to the summer of 2016, the Bank of England, Mark Carney in particular, were extremely concerned about the impact of a yes vote in the Brexit referendum. There were suggestions that stock markets would collapse overnight, property prices would fall and it would prompt another worldwide economic downturn. Fast forward to today and while there are concerns, the UK property market is still growing overall, the economy is set to grow by 1.1% this year and stock markets are riding high. Not quite the doomsday scenario predicted more than two years ago?
Investor sentiment
One of the main concerns amongst Brexit supporters is that this constant drip feeding of negative comment will eventually impact investor sentiment. We have already seen businesses delaying investment in their operations to “see how Brexit pans out”. It may well be that investors in stock markets and property markets alike also take a similar approach in light of this doomsday scenario prediction by Mark Carney. The problem then is that negative investor sentiment can lead to contagion which can effectively become a self-fulfilling prophecy. Businesses hold back on investment, unemployment increases and household incomes fall, leading to pressure on finances. It is not difficult to see how this might occur.
For some reason any positive slant on current Brexit talks, where there have been significant breakthroughs of late, are drowned in a sea of negativity stirred by the UK media. There is a growing opinion that not only is UK media pro Europe but the Bank of England is also showing similar traits. We even saw the Labour Party recently talking about a no-deal Brexit but also suggesting it would vote against ANY Brexit deal!
Conclusion
While Mark Carney’s doomsday prediction for UK property prices in light of no-deal Brexit caught the headlines, he does not have a good track record when it comes to Brexit forecasts. It may well be that he is correct this time, but a 35% fall in property prices would decimate households across the UK. No government with an element of sanity about them would allow such an event to happen because this would effectively make them unelectable.