- Bank of England governor testified to lawmakers in London
- Says there’s less risk of U.K. recession due to BOE action
Mark Carney stood by the actions of the Bank of England around the Brexit vote in a grilling by his most vocal critic, and suggested that the U.K. might avoid a recession.
“In light of all the events since the referendum, since the evening of the 23rd, I’m absolutely serene” about the judgments taken by BOE officials including the Monetary Policy Committee, the governor told lawmakers including Jacob Rees-Mogg, who took the lead in questioning the Canadian.
The Treasury Committee chair, Andrew Tyrie, opened the session with an unexpectedly immediate focus on pro-Brexit Rees-Mogg’s criticisms that Carney exaggerated warnings before the vote to exit the European Union and sought to justify them by encouraging an overreaction to the outcome. The governor testified to Parliament in London for the first time since the BOE said Britain’s decision had “markedly” worsened the outlook.
Carney said the BOE’s August stimulus package had reduced the chance that the U.K. would face a recession. While initial data suggest the economy may be “running a bit stronger” than the 0.1 percent growth that the BOE predicted for the third quarter, it’s still early days, he said.
“We expected some bounce-back, there’s been a bit more, but we’re keeping it in perspective,” Carney said. “We’ll see when we get all the data in, but broad-brush, is growth running about half as much as it was prior to the referendum? That’s probably about right, given what we know right now.”
While reports so far suggest the economy remained resilient after the June referendum, the Office for National Statistics won’t publish its first take on third-quarter growth until the end of October.
Defending the BOE’s decision-making before and after the referendum, Carney said he was “comfortable” with “the judgment of this committee -- all individuals and the committee collectively -- that the referendum represented a risk to monetary policy, in other words to the stance of monetary policy.”
Carney has frequently clashed with Rees-Mogg. The lawmaker and founder of investment firm Somerset Capital Management LLP said in an interview this week that while he did not wish to be the governor’s “arch critic,” the BOE chief has often undermined his institution’s impartiality, and had acted to boost stimulus without sufficient evidence.
The questions from lawmakers, which Carney characterized as occasionally reaching “deeply into the counterfactual,” largely scrutinized the stimulus unveiled by the MPC in August, and whether it acted too swiftly or did too much.
“We have tools,” Carney said. “We’re very much not out of ammunition -- nor are we trigger-happy.”
The pound extended declines as his remarks bolstered speculation that policy makers could still cut rates further. Sterling slid for the first time in six days, weakening 0.8 percent to $1.3337 at 4:59 p.m. London time. The FTSE 100 Index of stocks gained 0.3 percent.
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“There was some acknowledgment that some of the near-term data are looking better than expected,” said Chris Hare, an economist at Investec in London. “But it doesn’t seem like that’s a game changer for the committee so far. We still think a November rate cut is on the table.”
Other Bank of England officials appeared alongside the governor, including Jon Cunliffe, Gertjan Vlieghe -- and Kristin Forbes, who voted against parts of the August stimulus plan. All of them provided written testimony to lawmakers.
Cunliffe stated that while some data suggest the impact from Brexit is less than feared, he would vote for a further rate cut if the economy evolves as the central bank forecasts. Vlieghe said the size and composition of the BOE’s stimulus package introduced last month will be adjusted in line with how the economy is evolving.
By contrast, Forbes said she would be less likely to support more easing if demand doesn’t weaken as much as the bank’s forecast, if supply weakens more than expected, or if sterling’s depreciation continues.