- Mody says BOE is “cynically exploiting” its authority
- Governor Mark Carney has defended the BOE’s right to intervene
The Bank of England is overreaching its mandate by intervening in the debate surrounding the U.K.’s referendum on European Union membership, according to Ashoka Mody, a former economist at the International Monetary Fund.
With just over three weeks before the vote, campaigning is intensifying and has split the ruling Conservative Party of Prime Minister David Cameron. While BOE Governor Mark Carney says his officials haven’t supported either side in the ferocious debate, the central bank’s detractors claim it’s become political by choosing to emphasize the risks attached to an exit.
“The BOE is cynically exploiting its authority by claiming to detect Brexit-induced anxiety in the cloud of short-term data,” Mody, who’s now a visiting professor at Princeton University, wrote in an article published on the Independent News website. “More outrageous is the bank’s warning of mayhem if Britain votes to leave. The bank is, in effect, building a narrative of panic, which could become self-fulfilling. The central bank’s proper role is to reassure and stand by to stem panic.”
Carney intensified his rhetoric this month, warning a vote to leave could spark a recession as the central bank cut its growth forecasts. Policy makers are grappling to understand how much of the recent slowdown can be attributed to the June 23 referendum and how much would be occurring anyway.
Mody said the official consensus on the economic costs of Brexit smacks of “groupthink.”
“The bank says that fear of Brexit is holding investment back and, thus, causing growth to slow down in anticipation. How can it know that? British GDP is slowing for so many reasons,” Mody wrote. While the Treasury, the OECD and the IMF have all made predictions, “the Bank of England’s claims are the most outrageous of all,” he wrote.
Michael Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, has publicly supported the campaign to keep the U.K. in the EU.
Special Report: Britain’s Brexit Question
Should the U.K. stay in the European Union or go its own way? Voters will have their say on June 23rd.