LONDON: Bank of England Governor Mark Carney said a pursuit of the “low road” of protectionism would cost jobs and growth and there were tentative signs that a rise in trade barriers might be weighing on the world economy, Bloomberg said on Monday.

“We can choose between a low road of protectionism focused on bilateral goods-trade balances and a high road of liberalisation of global trade in services,” he said in an interview conducted last month.

“The low road will cost jobs, growth, and stability. The high road can support a more inclusive and resilient globalisation.”

Asked about the increase in U.S. trade tariffs under President Donald Trump, Carney said the impact of actions taken as of June were likely to be small. “However, a larger increase in tariffs would have a substantial impact” and there would also be indirect effects on the economy via business confidence and overall financial conditions, he said.

Carney said global interest rates might eventually return to their pre-financial crisis averages, which in Britain was around 5 per cent – 10 times their current level – “but a lot of things have to go right in order for that to be the case.” The Bank of England’s top policymakers are due to publish a first estimate this week of the so-called equilibrium level of interest rates that will keep inflation and growth rates stable when the economy is running at full capacity.

Carney told Bloomberg it was “more likely than not” that the equilibrium rate had begun to rise.

“But any given jurisdiction has to take into account its own domestic forces, whether there are headwinds from fiscal policy, headwinds from uncertainty, headwinds from trade discussions or other factors,” he said.

Carney said banks might face a “disorderly Brexit stress test” in March next year if London and Brussels fail to strike a deal over their future relationship in time for Britain’s departure from the European Union.

He also said EU countries were unlikely to replicate London’s global standing as a financial centre.

“In some circles in Europe there is a greater predisposition to ring-fence financial activities,” he said. “That could lead to a very large but effectively local financial center in Europe, as opposed to a global financial center, which I believe London will continue to be.”

Published in Dawn, July 31st, 2018