No-deal Brexit would have a more lasting effect on UK than COVID - BoE's Bailey

FILE PHOTO: Bank of England Governor Andrew Bailey poses for a photograph on the first day of his new role at the Central Bank in London, Britain March 16, 2020. Tolga Akmen/Pool via REUTERS

LONDON (Reuters) - Bank of England Governor Andrew Bailey said on Monday a no-deal Brexit would cause longer-term damage to Britain’s economy than the COVID-19 pandemic, and the impact of the change might be felt for decades.

“Well, I think the long-term effects ... would be larger than the long-term effects of COVID,” Bailey said when asked by a lawmaker about the consequences for the economy if Britain and the European Union fail to strike a post-Brexit trade deal.

London and Brussels remain locked in negotiations ahead of the Dec. 31 expiry of Britain’s Brexit transition period.

Bailey said he was “at the rather more optimistic end” about the impact of COVID, beyond its short-term shock which the BoE thinks will cause a record 11% contraction of Britain’s economy this year.

“It takes a much longer period of time for what I call the real side of the economy to adjust to the change in openness and adjust to the change in the profile of trade,” he told parliament’s Treasury Committee.

He recalled how officials working in 1997 on tests for whether Britain should adopt the euro estimated it would take 30 to 40 years for the economy to adapt to a shift to the single currency.

“It’s hard to put a multiple on it as you say, but I think you’re basically right to say that in that scenario you would expect a longer-term effect from the exit trade agreement,” Bailey said.

Reporting by David Milliken; Writing by William Schomberg