LONDON – Two of the most senior figures in Britain's economy argued Tuesday for cooperative, not adversarial, talks over the country's exit from the European Union, calling for a deal that benefits both sides rather than erecting barriers that will hurt everyone.
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Treasury chief Philip Hammond and Bank of England Governor Mark Carney said in separate speeches that Britain must use the negotiations to reduce obstacles to trade in services while protecting the benefits of free trade in goods. Services, including banking and insurance, account for 80 percent of Britain's economy.
"It would be all too easy to give in to protectionism," Carney said. "But as we learned in the 1930s, that road leads neither to equity nor prosperity. Raising barriers to trade disproportionately hurts the least well off through higher prices and fewer opportunities."
Carney also downplayed the possibility of an interest rate increase amid the uncertainty wrought by Britain's pending departure. He said that while rates will have to rise as the economy strengthens, "now is not yet the time to begin that adjustment."
In addition to his comments on trade, Hammond said immigration should be managed but not "shut down" as he emphasized the need to protect economic growth. The remarks at the annual Mansion House session for leaders of Britain's financial industry suggest Hammond prefers a deal that preserves more trade links with the EU than the "hard Brexit" supported by his boss, Prime Minister Theresa May.
May has put her focus on cutting EU migration, and the EU has said that if Britain wants to tighten its borders for EU citizens, it would not be allowed to remain in the tariff-less EU single market.
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The government, which began formal talks with the EU on Monday, is under pressure to soften its stance on Brexit after losing its majority in an early election this month. Analysts believe many voters rejected May's Conservative Party because of concerns its approach to the talks would dim Britain's economic prospects.
Some 90 percent of those surveyed in a recent poll thought free trade was good for the economy, regardless whether they voted to leave the EU or remain, Hammond said.
"Just as the British people understand the benefits of trade - so, too, they understand how important it is to business to be able to access global talent and to move individuals around their organizations," he said.
Hammond also took a shot at his EU counterparts, suggesting that recent attempts to increase regulation of financial services were a veiled attempt to wrest business away from Britain.
"Let's be honest, we are already hearing protectionist agendas being advanced, disguised as arguments about regulatory competence, financial stability, and supervisory oversight," Hammond said. "We can have no truck with that approach."
The European Commission, the bloc's executive body, has moved to tighten regulation of clearinghouses that process euro-denominated contracts, threatening tens of thousands of jobs in Britain once the country leaves the EU. Under rules proposed last week, any clearinghouse considered important to the EU financial system would have to accept direct oversight from EU regulators and, if requested, relocate to inside the bloc.
Clearinghouses act as intermediaries to reduce the risk of default by ensuring funds are delivered to the seller — a way of undergirding the financial system. London is currently the European center for this business, handling 98 percent of all euro-denominated contracts for interest rate swaps.
Carney, whose agency oversees much of Britain's financial system, said turning inward would increase costs for business and reduce financial stability. Instead, the two sides should look for a "cooperative and reciprocal agreement" that strengthens the financial system, he said.
"Fragmentation is in no one's economic interest," Carney said. "Nor is it necessary for financial stability. Indeed it can damage it."