Carney Is About to Stop Talking About Brexit

Brexit as Black Swan?: Currency, Confidence, Credit Shock
  • Nine days to go until Bank of England’s self-imposed purdah
  • Officials will probably face lawmakers in parliament next week

Brexit campaigners crying out for Mark Carney to stop talking should get their wish granted next week.

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With just nine days until a pre-European Union referendum purdah period begins, the Bank of England governor has a few hurdles to jump in the fraught political race that’s dominated his agenda. After his most recent comments dragged him further into the fray and one lawmaker called for him to be fired, that period might not come soon enough.

Mark Carney
Mark Carney
Photographer: Simon Dawson/Bloomberg

Carney has staunchly justified his stance, saying it’s the central bank’s remit to warn on risks. Still, the fracas over his independence will probably continue next week when BOE officials may be called to testify to lawmakers. That risks a revival of a verbal sparring match from earlier this year when pro-Brexit Jacob Rees-Mogg accused the governor of lacking dignity.

“It’s a difficult issue and I’m sure he will be looking forward to the start of purdah,” said Andrew Sentance, a former BOE policy maker. “The strategy of the governor now should be to defend what they’ve said and not go any further -- he’s not a political campaigner.”

Focus on Carney intensified last week when the BOE published its quarterly Inflation Report, including the strongest warning yet that a vote to leave the EU would harm the economy. As the Monetary Policy Committee lowered its growth forecasts, the governor told a press conference an exit could spark a recession.

Polls suggest a lead for the Remain camp, and forecasters say the U.K. is more likely to stay in the EU than to leave. Fifty five percent of respondents in an Ipsos Mori poll for the Evening Standard published on Wednesday said they’d choose to remain in the bloc, while 37 percent said they would vote to exit. The pound reversed a drop against the dollar after the poll was released.

Purdah Due

The BOE’s unprecedented intervention last week drew a barrage of comments, with pro-Remain stalwarts including Prime Minister David Cameron saying the central bank was right to warn about the potential outcomes, while pro-Brexit campaigners, like Energy Minister Andrea Leadsom, accused Carney of overreaching his mandate and invoking financial instability. Rees-Mogg said the governor “should be fired.”

“Whatever anybody in an important position like the governor says, it’s going to be jumped on by one side or another,” said James Rossiter, an economist at TD Securities and a former BOE official. Policy makers were “very, very clear about drawing lines around the analysis and saying that the core forecast is predicated on the status quo.”

With parliamentary time restricted in the run-up to the June 23 referendum, Carney and other BOE officials will probably be called before the Treasury Committee next week. That would mark their last scheduled appearance before May 27, when the central bank will voluntarily adhere to Cabinet Office-issued guidelines on speaking restrictions in the four weeks leading up to the vote. 

Political Interventions

Essential BOE business remains unchanged though, with Carney scheduled to give an annual speech at the Mansion House Bankers and Merchants Dinner in London’s financial district on June 16, hours after the central bank publishes its next policy decision.

The Canadian-born governor is no stranger to the political cross hairs, having commented on the economics of the Scottish independence referendum in September 2014. While he steered clear of policy implications back then, this time he’s warned a Brexit would leave officials facing a “challenging trade off” between lower growth, faster inflation and uncertainty about trade deals.

How the other eight members of the committee see his outspokenness is still to be determined. A proclamation by former governor Mervyn King that he was “very pleased” with the budget plans of the Conservative-Liberal Democrat coalition in 2010 left some officials feeling he’d been too political.

“One would expect the governor of the central bank to have a view on the economic implications of, if not Brexit itself, then maybe risks to financial markets surrounding the decision and the implications,” said Neil Williams, chief economist at Hermes Investment Group in London. “One would be more surprised had he not commented at all on the issue.”

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