Mark Carney's EU Speech in Five Charts

The Bank of England governor waded into a debate with a speech that tried to stay out of it.

Carney’s EU Speech in 90 Seconds

As the dust settles on Mark Carney's foray into the debate over Britain's membership of the European Union, five of the charts he presented are worth revisiting.

The first was on trade, and shows how the economy has become more exposed to the health of its trading partners:

Carney - Chart 1 UK Trade as % of GDP

U.K. Trade Volumes as a Share of GDP

The second illustrates how Britain is the most exposed in Europe to these forces. Its share of global Foreign Direct Investment (FDI) is around twice its share of global activity and the largest of any EU state.

Carney - Chart 2 UK share of FDI

U.K. Share of EU FDI

While that cross-border trade creates investment opportunities and promotes diversification, it also leaves  the economy vulnerable to shocks from abroad. These risks are especially pertinent to the U.K., where the financial sector is significantly larger as a share of GDP than other European countries.

Carney - Chart 3 Size of UK financial sector as % of GDP

U.K. Financial System as a Percentage of GDP

And the risks are not confined to the financial sector. Domestic British firms are among the most open to foreign competition, with incumbent firms receiving the lowest regulatory protection in the G7. That means they are more vulnerable to cheaper products from abroad than many of their international competitors, but equally able to access global supply chains.

Carney - Chart 4 UK firms least protected

Incumbent Firms Least Protected

Despite the trade-offs, Carney said that the dynamism of the U.K. economy has arguably been bolstered by the free movement of goods, services, capital and labor within the EU.

Any threat to those benefits in the near future could come at a particularly bad time. Since the financial crisis the country has seen strong employment growth, boosted by a highly flexible labor market, but stagnant growth in output per hour worked. This has left a productivity gap against some of its biggest trading partners that is only just starting to close.

GDP Per Hour Worked
GDP Per Hour Worked

If Britain sees its access to European markets curtailed it could set back the nascent recovery in labor productivity, resulting in permanently lower incomes for U.K. workers and/or potentially higher levels of unemployment.

Before it's here, it's on the Bloomberg Terminal.