Carney in Brexit Crisis Confronts Own Future at Three-Year Mark

Brexit: What's the Next Move for Carney, BOE?
  • BOE governor has left the door open to extend his term
  • Position at Bank of England ‘in question,’ says Blanchflower

Now it’s Bank of England Governor Mark Carney’s turn to choose whether to leave or remain.  

As he marks three years atop the U.K.’s central bank this week, the 51-year-old Canadian will realize his credibility is in question after Britons pushed aside his repeated warnings over the economy and voted to quit the European Union.

That decision not only forces Carney into another round of financial firefighting, but hands a victory to those pro-Brexit lawmakers who attacked him during the campaign for scaremongering and accused him of favoring the “Remain” side. With Prime Minister David Cameron stepping down, his successor could even be one of those critics.

“Politically, Carney is now in a very difficult position,” David Blanchflower, a former BOE policy maker now at Dartmouth College in New Hampshire, told Bloomberg Television. “Presumably a new prime minister will not be happy -- a pro-Brexit prime minister in the group that accused Carney of trying to push to remain. So Carney’s position is clearly in some question.”

‘Steady Hand’

Vitriol from some lawmakers and the worsening economic outlook will now be playing on the BOE governor’s mind just as he mulls whether to extend his term by three years or step down in 2018 as planned. Yet Carney, who earlier this year left the door open to an extension, may be tempted to stay to bolster stability and provide continuity through the coming years of negotiation, adjustment and uncertainty.

Still, the pending arrival of a pro-Brexit government and potential departure of ally Chancellor of the Exchequer George Osborne may also push Carney to stick with the earlier departure date if there isn’t some mending of fences. Boris Johnson, the bookmakers’ favorite to succeed Cameron, publicly criticized Carney during the referendum campaign, while others accused the BOE of “startling dishonesty.”

If that backdrop taints relations with the government, it could mean Carney’s future is not in his own hands.

“I think it’s very unlikely but there’s absolutely nothing to stop a new chancellor or a new prime minister calling him in and saying ‘We want a new face’,” former BOE Deputy Governor John Gieve, who was in charge of financial stability at the central bank during the run on Northern Rock Plc in 2007, said in a telephone interview. “I actually think that the new leader will want to bolster his own credibility in the markets by cooperating and collaborating with Carney.”

In what may be an attempt to heal any rift, Johnson backed Carney in a column in the Telegraph newspaper, saying the economy is “in good hands.”

“Now that the referendum is over, he will be able to continue his work without being in the political firing line,” Johnson wrote. 

The Critics

Other prominent figures in the ‘Leave’ campaign may disagree. Before the June 23 vote, Conservative lawmaker Jacob Rees-Mogg accused Carney of compromising the BOE’s independence and said he should be fired. His fellow party member Steve Baker queried whether Carney’s former employer, Goldman Sachs Group Inc., had encouraged him to warn on the risks of leaving the EU. Rees-Mogg couldn’t be reached on Sunday and Baker declined to comment.

“I don’t think the governor of the Bank of England behaved in an independent manner during this campaign at all,” U.K. Independence Party leader Nigel Farage said in an interview with the Globe and Mail newspaper published Sunday. “There will be some real questions in parliament about whether it’s appropriate for him to continue.”

With the immediate economic challenges mounting, Carney pulled out of an ECB forum in Portugal this week, and Osborne said Monday that he had been in contact with the governor over the weekend on contingency plans. Carney will lead a quarterly meeting of the BOE’s Financial Policy Committee on Tuesday. It’s due to publish its semi-annual Financial Stability Report on July 5.

Osborne Resolve

“It will not be plain sailing in the days ahead but you should not underestimate our resolve,” Osborne said. “There have been questions about the future of the Conservative Party and I will address my role within that in the coming days.”

Carney has consistently defended his comments on the impact Brexit would have on the economy with the observation that suppressing his concerns would have been a political choice. He drew support from his predecessor at the BOE, Mervyn King, on Monday.

“Central bank governors are always criticized,” King said in a BBC interview. “I don’t think that means to say they are wrong.”

And Carney’s fast action last week to calm markets may win him supporters. 

As the pound and U.K. stocks tumbled in the immediate aftermath of the referendum result, Carney issued an early morning statement, pledging to provide an extra 250 billion pounds ($337 billion) for the financial system. He also held out the prospect of even more dramatic measures from the BOE if needed.

“He’s been a calm voice of reason throughout, not exaggerating the dangers,” said John Mann, a Labour lawmaker on the Treasury Select Committee who supported leaving the EU.

Indeed, despite his perceived alignment with Osborne and the “Remain” campaign, it may be that Carney, with huge powers over both the economy and financial stability, can ride out the storm of political and economic uncertainty.

“By God, we’ve got to have a steady hand on the tiller,” said Mark Garnier, a Conservative lawmaker and member of Parliament’s Treasury Committee. “This is not a difficult week, this is actually a difficult two or three years. He’s somebody who should be asked to make a commitment to see us through to the long term.”

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