Carney Defends BOE Brexit Commentary as Warning Signs Growby
Governor says Bank of England will develop contingency plans
Carney appears before Lords Committee on Economic Affairs
Bank of England Governor Mark Carney defended his comments on the European Union as Britain prepares to vote on its 43-year membership of the bloc, suggesting it would be irresponsible of him to ignore the risks of a so-called Brexit.
“Assessing and reporting major risks does not mean becoming involved in politics; rather it would be political to suppress important judgments which relate directly to the Bank’s remits and which influence our policy actions,” Carney said Tuesday to the upper House of Lords Economic Affairs Committee in London. “These policy actions include developing, and if necessary implementing, contingency plans.”
BOE officials said last week that the referendum may already be weighing on growth, and uncertainty surrounding the vote is creeping into indicators such as hiring intentions and investment -- views Carney echoed in his testimony. Pre-referendum jitters have also weighed on the pound, which policy makers said “raises questions” about whether the level of sterling will persist, as well as the net economic impact.
The appearance is Carney’s first in Parliament since he was grilled by lawmakers about the U.K.’s membership of the EU in March, which was dominated by a tussle with Conservative lawmaker Jacob Rees-Mogg who accused the BOE of backing the government’s bid to keep Britain in the bloc . While the committee Carney faces today is mixed in its stance on the referendum, it includes prominent pro-Brexit figures including former Chancellor of the Exchequer Norman Lamont.
With polls showing the referendum outcome is too close to call, Carney stressed that it is within the remit of the central bank to assess and prepare for risks around the vote, and that the institution has the tools to deal with various economic outcomes.
“Make no mistake, this is a resilient economy, it is a resilient financial system,” Carney said. “There could be various macroeconomic outcomes but we are looking and we will continue to work to ensure that the financial system does not amplify and undermine economic shock.”
Citing the pound’sdecline, the rising cost of hedging against sterling losses and a drop in short-term interest rates, Carney said there was “growing uncertainty’ over the U.K.’s economic prospects and that growth could soften in the first half.
Asked about the current-account deficit, which surged to a record 7 percent of gross domestic product in the fourth quarter, Carney said it is one of the economy’s “vulnerabilities” that a Brexit vote could exacerbate.
Since the U.K. is reliant on “those who want to finance the spending and investment associated” with the deficit, the consequence of a vote to leave could be a “sharp slowing of the economy,” Carney said. The shortfall is “remarkably high for a large, advanced economy.”
Carney is testifying a day after Chancellor of the Exchequer George Osborne warned of deep and lasting economic damage if Britain leaves the EU. The predictions, contained in a 200-page Treasury analysis, prompted fury from pro-Brexit campaigners.
In his evidence, Carney said the report is “consistent” with the BOE’s “assessment in general of the impact of openness on the U.K. economy” and that it followed “a sound analytic process.”