- Lawmakers say BOE's position seems supportive of `remain'
- Bank of England governor says poll is matter for U.K. voters
Mark Carney was accused of jeopardizing the Bank of England’s credibility in the European Union debate as he faced a fiery line of questioning from U.K. legislators.
While the BOE governor has spent months trying to avoid the political battle -- a task lawmaker Andrew Tyrie compared to bomb disposal -- some members of the Treasury Committee said BOE statements including an October report and a letter published Tuesday supported the government’s bid to keep Britain in the bloc. They questioned whether the central bank had overstated the positives.
“The language we’ve used in the report, the language we use in the letter, is careful,” Carney told the cross-party panel on Tuesday. “To state the obvious, economic questions are important questions in terms of the broader decision the people of the U.K. have to make.”
Tensions are running high in the buildup to the referendum. Goldman Sachs Group Inc. and BlackRock Inc. are among those who’ve warned the June 23 vote puts trade and investment at risk and economists saying the full implications of an exit are almost impossible to quantify.
The opening of the hearing on the economic and financial costs and benefits of EU membership was dominated by a testy exchange between Carney and pro-“Brexit” lawmaker Jacob Rees-Mogg of the ruling Conservative Party.
“You are coming out with the standard pro-European Union group” lines, Rees-Mogg told the governor. “It is beneath the dignity of the BOE to be making speculative pro-EU statements.”
“I’m not going to let that stand,” Carney said. He defended the BOE’s independent stance by saying economic issues are not the only consideration and the central bank will not make any recommendation on the topic. Later, when Rees-Mogg said Carney wasn’t upholding the BOE’s “Olympian detachment” from politics, Carney accused him of “selective memory” in relation to his testimony.
In the October publication, the BOE considered the impact of the EU on its mandate, but didn’t give a full analysis of the merits or the implications of an exit. While Carney again stopped short of providing a detailed assessment on Tuesday, he said that a “Brexit” would probably weaken the pound, push up yields and undermine investment. It’s also “without question” that some financial-services companies could relocate from London, he said.
Lawmaker John Mann, from the Labour opposition, asked if the BOE’s report was too focused on the virtues of membership, a suggestion the governor rejected.
“We do not take openness as an unalloyed good,” Carney said. While openness contributes to dynamism, trade, and foreign direct investment, it also makes the economy “more exposed to shocks.”
While the BOE hasn’t given details of its contingency planning in the event of a “Brexit,” it said on Monday it will make extra liquidity available to banks in the run-up to the referendum. Three additional indexed long-term repo operations will take place in the weeks around the poll.
Carney said a vote to leave could create forces on inflation in both directions, but that the central bank would be able to maintain price stability whatever the outcome.
“There could be lower levels of activity because of the degree of uncertainty that could affect investment and household spending,” he said. “On the converse, there could be movements in the exchange rate which would push up on inflation through normal exchange-rate pass-through, and the bank would have to take an assessment of those forces and their likely persistence.”
Carney testified alongside his deputy governor, Jon Cunliffe, who told lawmakers Prime Minister David Cameron’s deal to reform the relationship with the EU was “very significant and very material.”
The governor denied his comments were influenced by Cameron or anyone in government.
“We were not leaned on by anyone,” he said. “It would not make any difference if they tried.”